How much of a home owners insurance policy is needed?
I’m looking for a new insurance policy on 4 story home in Bed Stuy. One company is telling us we’ll need between 1.5-1.7M in coverage, as that’s what it costs to rebuild in Brooklyn. Another is offering us a 950K plan, and saying that would be plenty to rebuild in a worst case scenario.
We have not looked into what it costs to rebuild a house, as we have no plans to do so. Is there any guidance on how to determine the amount of insurance one needs?
KSR
in General Discussion 8 years and 3 months ago
17
Please log in, in order to post replies!
17 replies
KSR | 8 years and 2 months ago
Hi all, thank you for your input and advice. I ended up going with the higher quote. Considering how expensive even a modest renovation is, I’m thinking it is a more realistic estimate of the cost to rebuild to code.
If I had significant investments outside of my home, I might be more comfortable being slightly underinsured. But as all my eggs are in one basket, I feel better about having the additional coverage.
dorkofwindsor | 8 years and 2 months ago
do you know how much a vacant lot is worth in your hood? it may not be relevant to the insurance company, but it can help you back into the situation and get your head around the numbers. For example, in my hood, a vacant lot is probably $1.2ish and if you subtract from market value you should ballpark close to at least what the market puts on the physical value (in my case $800k-1m in “unrenovated” home value for 2 story 2 fam). Even still, the cost of construction fluctuates wildly, for example in 2006 it was quite high, pre sandy 2010 it significantly lower (per square foot). So i would advise asking what each insurance quote is using for cost of construction. On the one hand you don’t want to over insure, on the other hand you don’t want someone who is going to use bottom feeding contractors. for a 4 story brick / brownstone i’m going to say the 950k looks low, 1.2-1.5 would seem more in the ballpark but i haven’t kept track of construction costs. Frame house would be a different ball of wax.
slopefarm | 8 years and 2 months ago
x – see my comment above. The answer depends on the type of policy you purchase.
http://www.naic.org/documents/consumer_guide_home.pdf
http://thismatter.com/money/insurance/types/types-of-homeowners-insurance.htm
https://insurance.freeadvice.com/information/home/article/15
xchx | 8 years and 2 months ago
Question: let’s say you have $1 million of coverage. Does that mean they will definitely give you $1 million if the home is destroyed? Or will they want you to rebuild it according to a plan they approve and they only pay for that plan?
vlack3bos | 8 years and 2 months ago
My limited experience has taught me that the insurance companies don’t care how grand or historic your building is or what original details it contains. Cost to rebuild literally means the cost of the bricks/labor and has nothing to do with land value either. If your house blew up or crumbled to dust in a fire, you would never be able to replace any of that original detail anyway so why insure for it? My two cents.
slopefarm | 8 years and 2 months ago
Basics — you don’t decide on the amount of coverage, you decide on the type of coverage, i.e., what kind of rebuild you are entitled to. The carrier then determines through its own appraisal method what the estimated cost for that would be and then sets the premium accordingly. You are insuring the cost to repair/rebuild, not the value of the home., and the specs and the standard of the repair/rebuild are what drive the cost. that is, if your house burns down, do you rebuild a roughly comparable house in terms of square footage and amenities, do you get to build an exact replica of the old house, and are you covered for the cost of doing everything to current code as opposed to whatever state the old house was in. Best to cost it out all ways and decide what matters to you.
brooklynbasics | 8 years and 2 months ago
Insurance companies are in the market to not pay you and invest your money. The more you pay the more likely they are to pay you. It is an unfortunate truth. The words they put down on paper are hard to enforce, the numbers almost meaningless, because again they will do whatever they can to keep the money and invest it, especially for claims above $25k (where it is likely to hurt the most.) They will wait you out, low ball you, etc. If you qualify for USAA insurance, get it. If not consider the highest quality insurance co you can afford.
browngurl
in General Discussion 8 years and 2 months ago
Ok. Let’s just establish the extremes. Let’s say ksr would love to rebuild his house. Does that mean they should have their house appraised by a professional appraiser?
murph | 8 years and 2 months ago
With Trump that’s a difficult question. Will there be any claimants left to file a claim?
anotherpsarchitect | 8 years and 2 months ago
I agree with Lurker and others. I thought I had adequate coverage when I filed a claim (not a total loss), the first in 15 years, but they wouldn’t cover it because it was considered “wear and tear” and there was no precipitating event.
Lurker | 8 years and 2 months ago
i recall there’s a wording distinction between repair new and restore, which is what’s being discussed above but you should be clear whichever policy you buy what you’re getting. it’s not about the dollar amount so much as what they’d pay for if damage were to occur.
browngurl
in General Discussion 8 years and 2 months ago
Ksr – I’d love if you posted your decision! We are also in the same boat 🙂
slopefarm | 8 years and 3 months ago
Per run joe, I do not think there is a right or wrong answer, just an assessment of risk and deciding what you are comfortable with and how you will deal with contingencies. Our decision was to insure on the higher side (in part because of historic details – house is Civil War era). We took a higher deductible to control premiums. So we are essentially self-insured at the low end of damage. It would probably take at least $15-20k of damage for us to think about filing a claim.
But I should add that personalty (even jewelry, art, etc) is not the major cost driver of premiums. It is the kind and extent of repair/replace protection you have for the house itself.
Run Joe | 8 years and 3 months ago
My insurance is coming up for renewal and I’m inclined to insure on the lower side myself.
Barring a gas explosion that decimates the entire building, the most likely cause of extensive damage would be from a fire. Some fires damage buildings so badly that a gut rehabe is required. Other not so badly. Take the building that houses Putnam’s. There was a decent fire there a fews months ago and the restaurant and some tenants are already back.
Since, I don’t have a lot of valuable personal items (and I’m assuming my tenants have renter’s insurance), I’m thinking about insuring only for cost of a gut renovation. If the damage was catastrophic, I’d probably take the insurance check and sell the lot for as much as I could.
BTW, many homeowner are vastly over insured because banks require the entire mortgage amount be covered by insurance; which really isn’t connect to the cost of replacement or the value of the home(you could be underwater and the mortgage company will still want coverage for the entire mortgage balance.)
EJR | 8 years and 3 months ago
Should the worst case scenario happen, you should also consider whether you would rebuild or find some other use for the property. 241 Carroll Street comes to mind. As you may recall, this is the building that collapsed in 2012 (http://www.nytimes.com/2012/07/10/nyregion/amid-collapsing-walls-a-bit-of-luck-for-3-brooklyn-families.html). Rather the rebuild, the owners partnered with a developer to build a 4 unit condo, the 4 units of which sold for a collective $8.42 million (http://streeteasy.com/building/241-carroll-street-brooklyn#tab_building_detail=2). Highest and best use…
slopefarm | 8 years and 3 months ago
What EJR said. I think two cost drivers on the policies that are available are (1) whether you are covered to truly replace like for like, or just build a comparable house; and (2) for an old house that isn’t fully renovated, whether you will be covered to rebuild/repair to current code. It is highly unlikely that you will be invoking your policy to rebuild from scratch. However, I do know people who had to to some significant work to repair some fire damage, and it made a big difference that they were covered to repair to present code requirements.
EJR | 8 years and 3 months ago
It depends somewhat on the level of detail you would want to recreate if you rebuilt. Would you want a modernist box with mid-grade fixtures or ornate wood/plaster work and high-end finishes? What is the cost differential between the two policies? I would be inclined to (and have on my own house) insured at the high end of the spectrum.