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  • The Difference between Value of our homes and the Reconstruction Costs insurance companies are supposed to insure you for.

     

    Value of your home has to do with:

    1. Where the home is located at. (Lake front, nice suburb, downtown, or inner city) all of these different areas can change the value of your home drastically.
    2. Age of home, newer home have a higher value than older homes.
    3. Supply and Demand for homes in your area. If you are in a booming area you would be able to sell your home for more than if you are in an area where no one is buying currently.

    Those are just a few way the value of your home is determined. Value meaning what you would be able to sell your home for.

    Reconstruction Costs:

    Insurance companies should be insuring you for what they can rebuild your home for not the value.

    1. They have to rebuild your home brand new. From the ground up if you were to have a complete loss.
    2. They also have to build in demolition, debris removal and cleanup costs. (typically 10% to 20%)
    3. Whether your home was built in the 1920’s or the 2000’s the insurance company has to build your home “like kind and quality” which means if you have plaster on your walls vs. drywall they have to make your walls plaster. This costs extra due to the fact that there aren’t as many contractors that can do this well anymore. They have to take into account that some homes are custom and some are just basic.

    For an example; Let’s say you have a nice 1500 sq. foot ranch on a lot in a subdivision, Value is at $180,000. That same home on an all sports lake would be valued at closer to $350,000. Yet you move that same home to a small inner city lot and it might now be worth $50,000.   To the insurance companies it doesn’t matter where the home is. To rebuild that home on a lake or the inner city is going to cost very close to the same amount.

    So if you are ever wondering why the insurance companies have your home insured for so much more than it is worth, this is why. Hopefully this make it a little more understandable.