I’d guess at least once a week, someone in our office gets asked the big question:
How much should I insure my home for?
(Oh, how the English major in me wants to re-type that sentence. I’m such a nerd.)
Well, do you want to get back a whole house, the same size as the old one? Or do you want just part of a house? According to the IIABA 59% of homes in the US were underinsured by an average of 22%. Meaning when the worst happens and you’re at the lowest of the low point in your life, staring at your once beautiful home and all your possessions destroyed, you’ll then be hit with “you didn’t have enough homeowners insurance to rebuild.” Well, isn’t that wonderful!
Okay, so what is “enough”? What’s the magic number or formula to come up with “enough homeowners insurance to rebuild and not face a penalty?
First, the number is almost NEVER your mortgage amount. If anyone tells you otherwise, they’re wrong. Send them to me; I’ll set them straight.
Second, the number has nothing to do with property values or how much you could sell it for. Anyone living in a high priced beach front area knows that they’re paying a huge premium for location or a view, not the physical structure of the house.
Third, the number DOES include things like site clean-up and or the cost of materials at your local stores vs. the cost of those same materials in another state. Lumber in New Jersey went sky high for over a year after Super Storm Sandy, due to something as simple as supply and demand. What if building codes changed since your house was first built and the new requirements increase the cost of construction? Did you have plaster walls or a tile that is only quarried on some remote island the 15th of every odd month under the light of a full moon? Well, that’s more expensive than subway tile.
So again you ask- what is the magic number?
I’m going to use the dreaded words- “that depends.” My best friend built a home in a development in South Jersey. He had 8 blueprint options to choose from- he and his wife picked the one they liked best. The house started going up. They got the calls: you need to pick out cabinets, what countertop do you like, which appliances do you prefer? The house across the street is the identical blue print but one family chose all super high, high end features and the other opted for builders grade. Do you think the value of each house is the same? No way, they’re about $75,000 apart. Made by the same builder & contractors on the same street in the same town. Totally different.
That still doesn’t really answer your question.
Here’s the problem: there’s no easy answer. There are sites where you can do your own valuation; there are people you can hire to do an on-site inspection. Your insurance agent should absolutely do a computation based on a bajillion factors- how many bed rooms, what type of flooring, do you have a fireplace, etc. A quality insurance company will do their own valuation and may require an inspection of their own to come up with their magic number. A good insurance agency (like us!) will work with both you and the insurance company to come to a consensus.