In this series of posts, we have been trying to answer some of your most common insurance questions to help you make the best choices to insure and protect your family.
Let's get to it!
"Why are they insuring my house for so much? How are they getting that value? I couldn't sell my house for that much!"
Your home's Insurance Replacement Cost value differs from its Real Estate market value.
- The insurable Replacement Cost value is the cost to construct your home minus the land value.
Sometimes, this difference is less than the market value of the home. Other times it is more than the home's market value. Supply and demand cause fluctuations in the real estate market value. These differentials of value, coupled with other factors such as:
- rising cost of construction due to the pandemic-related slow supply chains
- lack of workers
- hurricanes in our area
- high demand but low supply of houses
have meant that insurance companies are reevaluating precisely the construction cost of the houses they insure. This, unfortunately, has created even higher rates for renewal premiums.
As we mentioned before, the reinsurance companies' rates increased, which have been passed to their insureds. And now it costs more to rebuild your house and thus to insure it at the higher replacement cost. A Replacement Cost Policy protects you in case your home suffers a total loss.
The courts in Louisiana have held insurance companies to the replacement cost provisions in their policies. This means they may have to pay more than they are insured under the policy. To protect you, and themselves, the insurance company requires your home to be insured at the Insurable Replacement Value. If they insure it too low, they may not collect enough premiums from rebuilding your house. If they insure it higher, they may have to pay more than your home is worth.
We know that this can all get very confusing, we are here to help!
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Until Next Time,