“My home is only worth $200,000, but the insurance company is making me insure it for $300,000.” Why are they doing this?
This is probably one of the most frequently asked questions I get. It’s a fair question, but has an easy answer. Your home or building is not insured for market value or appraisal value. It is insured for replacement cost.
In this video, I quickly explain what replacement cost is and why insurance companies base your home or building’s value on replacement cost.
Believe it or not, insurance companies are not out to get you on this particular issue. There are many cases where homes and properties have been greatly under insured.
When you suffer a loss to your property, the insurance company is obligated to indemnify (compensate) to so that you suffer no loss.
It doesn’t matter what your home will sell for or what is listed on your latest appraisal. The only thing that matters is how much it cost to rebuild your property with today’s costs.
Don’t get me wrong, replacement cost values aren’t a perfect science and there are inconsistencies, but most companies can at least provide a solid ballpark amount.
The last thing I want my insured to suffer is a situation where their home or property is destroyed and they do not have enough insurance to replace what they had.
That is my duty as an insurance agent. To inform, educate, and provide peace of mind before and after a loss occurs.
I think once people are informed and understand the concept of replacement cost better, much of the fear and distrust are eliminated.
If you have further questions about replacement cost, please let me know. It seems to a question I personally encounter often.
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