What’s the consensus on when to drop collision insurance on your old vehicle? If in an accident, the maximum payout is blue book value. If damage is more than that, they total the vehicle. Blue book is the most you can expect to collect.
Similarly, your home owners insurance is usually for replacement value. That value is stated in your policy. You can partially self insure by reducing your coverage to some value less than that. Then you are not fully insured, but the odds of a large claim are something like 30 to 1. Mostly you pay premiums for peace of mind but if you have assets full insurance may be optional.
If you reduce coverage by $100K and save $500 per year in premiums is that a good deal? Over a period of 30 years you will save $15K in premiums. Is it worth it?
In my experience insurance companies never go bankrupt and they certainly have significant expenses beyond claims — advertising, agents, adjusters, drones that fly over houses to inspect roof shingles, etc. I insure against looses I can not cover. Those are relatively new cars, house and most importantly liability. We have umbrella insurance. If the insurance company is on the hook for a few million, they will do a whole lot more in terms of fighting than to avoid paying me say $30K for a car claim.
We have $2,000 deductible and I probably will check to see if I can increase that. There is one other factor in the equation you did not mention. If one files a claim, there is a period measured in which your premiums may be increase. Back in 2013 we had a burglary claim - computers, photography equipment, iPad, watches, etc. Our State Farm premiums were higher for a period of 5 years. Although the premium increase became smaller every year. I did explore changing to another carrier and found out the new company would be happy to sell me home owners but again at an increased premium for a period of years.
One thing I was told about homeowner’s insurance was to realize that even if the house burns to the ground, there is value remaining. The land is still there, the foundation is probably usable. Perhaps with some luck the well and septic, if there were any. So that can be taken into account when deciding how much to insure for.
Once my investments had grown enough I added an umbrella policy as a bit of protection for them. Not something I deeply researched, just something I figured I aught to do.
Absolutely correct. That is why home owner insurance has additional items.
The top-line number is for the structure of the home. It normally does not include anything outside like landscape, flat work, detached buildings, septic systems, etc. Those types of things will normally be add-ons or covered as either separate line items or a bundle, often a percentage of the structure coverage.
With this house and our previous home, they only go to about a 50% coverage because we are in an ISO 10 area, fire station more than 5 miles and no fire hydrants within 10 miles. But I have replacement cost, so if I rebuild they foot the whole bill.
If I don’t rebuild, I lose a lot of the value of the house. They pay their rebuild cost, about 50% of what it actually cost to build plus they estimated $10,000 to clear debris, which is laughable. It would be $30,000 to $50,000 job to clear/dispose of everything back to the foundation.
We also have an umbrella because we have places people like to see. Here it is the creek and the hill between the road and the house. Our last place, we had a “small mountain” with a crater at the top. The kids from town would climb it and carve their names in the rock of the north face. (The oldest that I saw was 1933.) If people get hurt on our property, they may sue us even though they were trespassing.
If the land is in Berverly Hills or the North Carolina Outer banks that was true in spades. What also exists is the serious expense of clearing & cleaning the site for reconstruction to occur.
If the house happens to be a slab, there is this issue of water and waste systems. Digging up and replacing a concrete slab is not simple or cheap.
I once asked if I could reduce my replacement value and was told no, by 3 different insurers. They were insuring my house for what would be my asking price if I was selling it. I asked them if my house was a total loss would they be cutting me a check for the insured price. They said no, only for rebuilding costs.
I have built the three homes that we have lived in. I know what each component costs. When I insured our current house after its completion the insured replacement value was what I considered to be a fair retail asking price for the home. However, I asked them why do I need to insure the property or the basement/foundation? The property cost 16.5% of the fair market value of the home. The basement cost me 11.5% of the fair market value. That’s 28% of the total value of the home that should survive any disaster short of a nuclear war.
I didn’t win my argument, so after 30 years with Farmers Insurance, with no claims, I switched to American Family. After 3 years with them they started raising my homeowner rates. So I dropped them and went with Progressive. Again after 3 years Progressive started to raise my homeowners. Before I began searching for a new insurer, American Family called me and asked if they could quote me their new rates. I’ve been with them ever since.
Wow - I live in a 55+ community – 940 homes. We have a 45,000 sqft club house, 2 swimming pools, pickle ball courts, tennis courts, walking trails, raised bed gardens that owners can “rent” for $25/year, dog parks, over 100 different clubs & groups (most of these has specific dedicated stuff owned by the association.
I would tell any agent saying they would not insure for an amount below an asking price to sit on a fire ant mound just before I hung up.
More to the point, people should ask their Home Insurance Agent what their models say rebuilding cost is “today”. The last 3 insurance companies I have had all did a physical examination of our houses – things like measuring the house (to see is tax record information was correct), fly over via drones, looking at actual sale price of house - much like a formal appraisal would include.
In present times rising real estate prices make it easy to convince homeowners to insure their property for current market value. But they usually arrive at replacement value from sq footage multiplied by avg construction cost in your area.
Pumping up replacement value is an easy way to raise your premium and increase their income.
In times of high inflation getting an accurate replacement value for the term of the policy might be problematic. And how do you account for possible effects of tariffs on building materials like lumber?