[Justan]

How does one determine the “replacement value” of a house? I'm talking about the structure and not the contents. I spoke with the insurance company about this, and they say they use a formula, and the formula accommodates appreciation, but it seems to differ widely from reality. As example, I recently spoke with an architect and they claimed that around here anyway, residential building costs are about $200 per sq foot. According to the insurance company, the “value” of the house is approximately half of that. So how do you figure out the real value??

[gary]

Depends on what you want to mean by replacement cost. If you want to insure for a set amount as described by construction people, then insure for that amount. If you want to insure for replacement cost by the insurance company then have them quote that. Then make sure you read all the policy fine print carefully to determine what is covered and what exclusions there are. Insurance is a mature industry and the companies are very sophisticated in calculating rates for replacement. Not saying that as a "slam", ya just gotta make sure all your bases are covered. Hopefully, Tom will jump in here as I think he is an actuary, but I don't know what type...

[Kat]

No actuary here, but I've always paid for the extra insurance rider that rebuilds the house with an extra margin. USAA insurance The few times I've had an insurance sales person call, the minute I said USAA they hung up

[mpaul_hansen]

RE: Insurance rates - credit rating a big factor ?? Insurance, in my view, can be a "necessary evil". Based on experience with friends whose houses burnt, or in one case was torched by a random Arsonist. In the latter case, my friend was surprised to find out Insurance rates are also being set, at least in part, based on one's Credit Rating.

[Justan]

Thanks for the feedback. There are variables in rates based on one’s credit rating, which is unfair, but that’s not what I’m talking about. In talking with the insurance company, they said my house is valued at $X. This means that were the house to burn down, they would pay up to that amount. There is also some language that adds a variable of about 20%. Yet according to an architect I spoke with, he said that building costs amount to about 2x the value stated by the insurance company. It is simple task now-a-days to determine the value of a structgure. How is it that the insurance companies are permitted to grossly mis-represent the value of the structure? Note that this does not include personal property, only the cost of the structure itself. I’ve seen this time and again. Automobile insurance is the same thing. If a car is totaled, many folks with “full coverage” will never get what the vehicle costs to replace. Even for folks who rent, and even providing insurance includes a “replacement value” clause, has anyone looked at the details of what is needed to prove the value of something? Thanks, Kat for the reference to USAA insurance!

[Brian Curtis]

This doesn't address the question at hand, but I have been dealing with my insurance company lately. My dishwasher burned and melted the incoming water line. It pumped water out all night and flooded our house. It had to be dried out and the wood floor in our living room had to be torn up and replaced along with sheetrock damage to the ceiling downstairs and other miscellaneous items. The entire bill came to about 30K and they paid it all instantly (minus the deductible, of course). While it wasn't the whole house being replaced they did pay for all of the repairs.