Last week, I reviewed a home insurance quote with a friend of mine. She’s owned multiple homes in her lifetime. Not once though, has an insurance agent reviewed a home insurance quote (or auto) with her as I did. I hear that comment a lot. It disappoints me to think people are buying probably the most expensive asset they’ll own and no one took the time to explain what their home insurance covers.
This is the first blog in a series on how to buy and evaluate home insurance. We’ll do the same thing with townhome & condo insurance, renters insurance and car insurance. In all cases, the blogs will focus on the line items found in a quote and occasionally we’ll branch off to delve deeper into a particular area.
Every home insurance quote I prepare, regardless of the insurance company, has at least 9 items listed on it. They are;
- Dwelling coverage
- Other structures
- Personal property
- Personal property off premises
- Loss of use
- Personal liability
- Medical payments
- Policy deductible(s)
- Optional coverage items
The dwelling is the actual physical structure. It’s the house, or in some cases, the town house. The amount of coverage has little to do with;
- The loan / mortgage
- The tax value of the home
- The purchase price of the home
Whenever someone’s buying a home, they are actually buying two things;
- The home
- The lot the home sits on
Home insurance does not cover the lot. There’s very little that can happen to it (and the one thing that can happen will be covered in a future blog!). If the house burns down, the lot will still be there.
The amount of money the home is insured for is designed for one thing only and that’s to replace (assuming a replacement cost policy) the house if a worst case scenario happens. A worst case scenario is a total loss. The two most common total losses are;
In either of these cases, the amount of dwelling coverage should be sufficient to cover;
- All demolition (partial or full)
- Removal of all debris (there usually a permit and cost required to pay for the debris to be deposited on the local dump)
- Rebuild the home like it was prior to the total loss
There are a number of items most people don’t think about when considering the cost to rebuild a home including;
- Blue prints / plans
- Grading the lot if a new foundation is required
- Wiring & plumbing (re-wiring or re-plumbing in a partial loss)
- A security fence for the property
- Erosion screening to go around the property to meet EPA guidelines
- Port a potty rental for the workers
- Cost of materials & labor
- Changes that may be require to bring things into code (older homes)
The cost to rebuild a single home cost more than it does to build multiple homes in a new development on a per unit basis. The reason for this is the new home builder can;
- Reduce their material costs through larger purchases (quantity discounts)
- Reduce their labor cost by better utilization of crews when they are on-site
Since 2008, the one thing that’s remained consistent is that most homes are insured for more than their purchase price or potential sales price. This may change if the market continues to improve as it has in the last 6 months. To review how much coverage you need refer back to our earlier blog, “Is your home adequately insured”.
In our next blog, we’ll dig into other or separate structures. Have a question? Post it on our Facebook page or tweet me (@wiseinsgroup) or write it in our comments.