Understanding Insurance to Value

Understanding insurance to value. How much coverage is enough?

"Insurance to value" is the phrase the insurance industry uses to describe the amount of insurance needed to rebuild or replace your property if it is completely or partially destroyed

by a covered peril. The cost to rebuild property is different than your properties market value because replacement cost value's includes various costs and conditions that have changed or probably weren't present when the structure was originally built.

How much insurance is enough that's the question. We recommend insuring your home, dwelling or business at 100% the replacement cost value. We will work with you to establish an accurate replacement cost value for your home or business. To calculate the replacement cost will use construction cost data provided by recognized appraisal agencies, as well as the information you provide to us about your home or business.

Once a replacement cost is established the value is adjusted annually to keep up with inflation. We also recommend you review your coverages and limits periodically with us especially if changes, alterations or improvements are made to your home or your business.

How is replacement cost calculated? Several factors impact the dwelling replacement cost value. It is also important to note that reconstruction usually costs more than new construction.

Here's why:

1)    Economics of scale. This alone can increase the cost of rebuilding by thousands of dollars when compared to new construction.

2)    Building versus rebuilding. New construction starts with the foundation and builds up. Repairing or rebuilding a structure that is damaged often means removing damage materials and working down. Working from the top down is more time-consuming and labor-intensive.

3)    Demolition and debris’ removal and protecting what’s not damaged.

4)    Labor efficiency.

5)    Changes in building codes. Sometimes even undamaged parts of the structure may have to be brought up to current building codes and using improved building martials.    

6)    Natural disasters.

7)    Inflation.

8)    Access to the worksite.

9)    Unusual materials and features.

How can you be sure you have enough insurance? Review your policy to make sure everything is covered to your satisfaction. If it's not, check with us into increasing your coverage amounts.

If you don't understand something in your policy just ask! Remember to review your policy coverages each year when you receive your new declarations page. Any major remodeling you do can increase the replacement value of your home. Work with us to make sure your coverage limits are adjusted accordingly.

Questions, thoughts or comments just let us know.

If you have insurance topic ideas that you would like us to cover or need more information on, please let us know. We are always here to answer any questions you have.