A Little Info On Homeowners Insurance – Market Value Vs. Replacement Cost

Well winter has reared its head once more and all over the Mid Atlantic people are facing flooding and the subsequent water damage that comes with it. Things can be frustrating and the last thing you want to think about is your homeowners insurance coverage at a time like this, but it is important. Did you know that water damage at the ground level or even underground is not covered? Examples would be flood water entering at ground level, sewage backup into the basement drain or water seeping through your foundation. These issues all require water extraction, drying, mold prevention and a plethora of other water damage restoration and mitigation services that might not be covered by your current policy!Well I don’t want to just depress you and make it feel hopeless so there is a solution. Take the time to hire a qualified waterproofing contractor or water damage restoration company. These contractors have faced this issue many times and understand the dynamics of water infiltration and how to prevent it going forward. They will undoubtedly install a sump pump, giving you as a homeowner the ability to add a supplement to your homeowners insurance for Sump Pump Failure & Sewer Backup Coverage. It comes in coverage for as low as 4K all the way up to 10K and possibly more.

I give this example for a reason. Choosing the right homeowners insurance can be difficult and making sure that you find a reputable agent to get the right policy for you is important. Once again we are not an insurance company so we turn to the professionals to give some solid advice on certain aspects on properly insuring your home. Scott Burns at Weber Insurance gives us this tip on Market Value Vs. Replacement Cost.

K. Scott Burns, CIC
   www.weber-ins.com
        717-646-3026

“We regularly are asked the question when customers are applying for homeowners insurance “ I only paid $200,000.00 for the home, why do you want to insure it for $300,000.00? The answer to the question is that an insurance policy is based upon the replacement cost of the dwelling, not market value. If the structure suffers a loss the policy language says that we will replace with like kind and material. This is very evident with a lot of the local older homes some of which are 4 rows of brick deep.
Insurance companies have gone through great pains to develop computer programs that are designed to give a very close estimate regarding the replacement cost. These programs consider local building costs, cost of local materials, location of the dwelling, construction type, original construction date and many others. We have found that if done correctly these estimators are as close as you will get without hiring a contractor to work up an estimate.
Having the correct insured limit is essential at the time of a loss. Wording in the homeowners policy explains that in the event your limit is not enough you are penalized by the percentage of underinsurance. Let’s say there is a $100,000.00 loss to the home mentioned above, with an insured limit of $300,000.00 there will be full payment less the deductible. If the policy had a $200,000.00 limit you would be $100,000.00 underinsured and suffer a penalty of $33,000.00. This is not what you want to hear when dealing with the stress of a home fire or other type of property loss.
Suffering a penalty can effect money available for the initial clean up as well as future repairs. Your agent is trying to help, take their advise! Market Value vs Replacement Cost can be miles apart or very close depending upon the circumstances.”

Knowing what your policy does and does not cover is very important for preventing massive losses. When you have to count on a restoration company to deal with property damage, knowing that your insurance company has your back is paramount. With the upcoming “wet” season, it might be time to consult your insurance agent to make sure that you have the right kind of coverage. Of course there is no way to tell the future of your actual needs but a qualified agent, such as Scott, would be key to ensuring that if the worst is to happen, you are taken care of!