| Do you know how much insurance you should have | | | | replacement cost by using an estimating software. It |
| on your home? Do you know the difference | | | | calculates the cost of lumber, labor, and debris |
| between appraisal cost, assessment cost, market | | | | removal based on square footage, construction style |
| cost, replacement cost, and extended replacement? | | | | - is it custom, basic, etc. and determines a price. |
| Odds are the people you count on for this | | | | They then base their rates on those prices. The land |
| information don't know. If you asked your mortgage | | | | value is not part of the equation. How much you paid |
| person, realtor, insurance agent, friend, co-worker, or | | | | for the home is not part of the equation. Telling them |
| some other person you rely on for financial advice - | | | | your out of work brother in law will build it for less |
| they would not know the difference between the | | | | will not work and is not part of the equation. |
| values. They probably think they know. | | | | The two common mistakes and misunderstood by |
| Unfortunately, they probably do not know the | | | | mortgage companies are incorrectly assuming loan |
| difference or how much insurance you should have | | | | value equals replacement cost and extended |
| on your home. If you think this is an exaggeration - | | | | replacement on an insurance policy means it can be |
| go ask some of people after you read this article. | | | | insured for less if it has extended replacement. |
| You will be very surprised. | | | | Generally, the mortgage company wants the home |
| How can all these people not know? Well, for one | | | | insured to loan value which is not necessarily |
| they think they already know. So no one takes the | | | | replacement cost. It is usually more - except in |
| time to learn and because so few know, one would | | | | recent times. |
| likely receive wrong advice even if they did inquire. | | | | The mistake made by mortgage people regarding the |
| Thus, perpetuating the problem and increasing the | | | | extended replacement part. They incorrectly assume, |
| likelyhood your home is not properly insured. | | | | for example, if a policy has extended replacement to |
| What happens when a home is not insured to the | | | | 125% a $100,000 home need only be insured to |
| correct value? | | | | $75,000. Which is incorrect. |
| The first penalty occurs if you suffer a total loss - a | | | | Extended replacement is intended to extend beyond |
| fire or tornado completely destroys your home - you | | | | replacement cost in cases where, for example, a |
| have your home insured for $150,000 as this is the | | | | hurricane hits the east coast and drives up lumber |
| amount you paid for the deal on the foreclosed | | | | prices due to increased demand and labor prices as |
| home. The cost to rebuild the home is $290,000 | | | | many go to help rebuild and causing a shortage of |
| leaving you short $140,000. Now little Jacob and | | | | workers in an area. |
| Jessica will need to share a room, everyone shares | | | | So, if you want replacement cost, insure your home |
| the one bathroom, no hardwood floors, tile and one | | | | to replacement cost. The best way to ensure it is |
| less stall on the garage. The basement can be | | | | correct is too ask your agent for a copy of the |
| finished later. | | | | replacement estimate from the company insuring |
| Hopefully, no one notices there isn't any brick on the | | | | your home. As if it were not difficult enough - |
| front of the home as required. | | | | sometimes the values from company to company |
| The second penalty for being under insured is when | | | | can vary too. They do not all use a standard rater |
| you suffer only a partial loss. If you insure your home | | | | and sometimes the rater can be tweaked by |
| for less than eighty percent of the replacement cost, | | | | insurance companies plus or minus so much. |
| your claim settlement will be depreciated. If you only | | | | The good news is most of the time it does not cost |
| insured it to fifty percent, your settlement will be | | | | much more to insure your home correctly. |
| depreciated accordingly. Sadly, it probably would have | | | | Sometimes, if written correctly, all discounts applied |
| cost very little to insure it to full replacement and | | | | and packaged, a good policy with guaranteed |
| would have a real bargain before a the loss. | | | | replacement can actually cost less. |
| So, what is replacement cost and how does one | | | | Hopefully, this has helped you out and saves you |
| determine what it is the correct amount of | | | | some hassle. |
| insurance? Insurance companies determine | | | | |