Why is my home insured for more than my loan amount (or market value)?
Thumann Agency Personal Lines Manager: Jennifer Grigis answers...
First, you’re not insuring your home to pay off your loan, you're insuring your home to rebuild it back to its pre-loss condition. Second, your home is insured at replacement value, which means that is what it will cost to rebuild your home in the event of a loss. This cost includes debris removal, material and labor cost and any demolition that may be needed. Most Insurance carriers calculate this cost based on Marshall & Swift analysis. Marshall & Swift are known as the ‘building people’ and they use costs and labor data in your area to determine the actual cost to rebuild the home to its pre-loss condition.
Another factor that affects the replacement value is that when the cost of materials and labor are being calculated they are not calculated at a "bulk" pricing rate like they are when an entire community/subdivision is being built. It’s important to insure your home this way for a few good reasons.
One of the most important reasons to a homeowner is in the event your home is only insured at $200,000, you have a loss to ¼ of the property and it is actually going to cost the homeowner $40,000 to complete the repairs (including debris removal, demolition, etc) the insurance carrier is only going to pay ¼ of the replacement value ($25,000) to rebuild the home. That will leave the homeowner with $15,000 in out of pocket expenses. Remember you carry insurance to bring you whole again in the event of a loss. I will recommend replacement value every time because to me in the event of a loss like that I don’t want to have to worry about unexpected finances on top of the fact that my family just experienced such a loss.
For more assistance with your insurance needs, contact the Thumann Agency today;
(972) 991 - 9100
Insuring Families and Businesses in Dallas for over 20 years...
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