Insurance - replacement value and price per square foot

So I am quite confused.  I have seen lots of posts about setting your insurance based on replacement value and that different firms will come up with different #s. Recently I had insurance with National Union where I believe they used a # around $275 per sq. ft or so for their estimate, so replacement value of say ~$1.2M.  Nowhere near what our purchase price was, but seemed fair to me, I was done. I recently looked into Chubb (call me crazy) and when they came back with their preliminary estimate, they suggested the replacement value would be something like $2.5M!!!!!  So they are estimating say around $600/$700 per square foot. What is going on?  I was shocked.  Is this just normal that Chubb overestimates per square foot cost, or is there something else? In any event, reason I got nervous is because obviously at end of day, if something happens, I certainly would want insurance to properly cover to rebuild.  But I also don’t want them overinsuring (putting aside what premiums they may quote).

sunspot19

in Insurance 13 years and 8 months ago

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SMR | 13 years and 8 months ago

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I’m new to NY and just bought a place in DUMBO.  I had no guidance at all from my insurance company (USAA) which seems to specialize in tract housing in Fresno.  My place was recently renovated though not completely finished.  I guestimated $625 per square foot, which is less than I paid but within striking distance if the whole building is swallowed up by the earth.  (I closed two hours after the earthquake and four days before the building was evacuated for the hurricane, so this is not out of the question.)  This rate includes a good sized umbrella insurance component.  I plan to photograph and document the place when we finish the rest of the renovation in case I have to prove the quality of the construction and fixtures later on.

slopemope | 13 years and 8 months ago

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$275 sounds about right for generic insurance company replacement value.  Many won’t insure over that range.  Cost of replacement is what you insure, not market value.  Land value is significant, and obviously doesn’t need to be replaced.     Keeping in mind that: 1) General multifamily NYC construction cost running around $210/sf (i.e. generic w/ no upgrades; based on survey of multiple engineering cost indexes).  2) Reconstruction costs more than new construction.  Contractors must match existing materials (more skilled labor than brand new build); single home has no economies of scale in the indexes;  3) Premium contractor demands premium profit , and 4) Custom and historic homes are more expensive due to the higher skilled labor.   Does Chubb over-insure?  Perhaps.  But if you have a historic home with original detail and unique construction sometimes the only way to “replace” that might be to spend a fortune.  In other words, way more than $275\.     But Chubb is one of the best, if you were to lose everything this is who you would want to have.  If you have a good amount of high end original detail i’d focus on the firm first because you will probably be left with something less that what you started.   If you have a unique property that truly would be difficult to re-create, i would absolutely go with Chubb if you can afford it.  Ditto if you have a brand new custom rehab with high end upgrades throughout.

callalily | 13 years and 8 months ago

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State Farm insists that our place would cost less than $400,000 to rebuild completely. Now, I understand they mean using the cheapest possible, most hideous modern construction, probably with cement brick or something, and are not planning to include Victorian trim and plaster. But still — it seems low. Very low.

bullfrog | 13 years and 8 months ago

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Agree with architect66\. While 700/sf may be a bit high, 500-600/sf sounds about right.

architect66 | 13 years and 8 months ago

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Well, if you look at the market for construction costs, where a gut rehab is going for around $200-250 per sq ft, and consider that you have substantially higher costs for structure and enclosure, and recognize further that the insurance is also supposed to cover the cost of your posessions as well, the replacement cost figure may well be closer to what Chubb is estimating.  I also think that most real estate appraisers don’t have a clue about construction costs.

aaravkmr | 13 years and 8 months ago

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Hi guys,,, All of the companies are asking for the replacement cost.I’ve read that only way to get that is to hire an appraiser.So does that mean I get an appraiser first, THEN start getting insurance quotes?

newsouthsloper | 13 years and 8 months ago

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Replacement cost is the cost to replace the entire building should it burn to the ground. Your purchase price does not represent this cost since there are other factors involved (Most significantly the Land the building is on – Location, etc.) Most people overlook this point and think if the building burns down I want what I paid for the property which leads to overinsurance and unecessary premiums.  Even if you Insure your building for $2.5 Mil, the Insurance company will only pay you to repair or rebuild the building which will likely be far less than $2.5 Mil.