Construction Costs Affect Existing Homeowners, Too
High winds can cause limbs or trees to fall. A damaged municipal sewer line can create a backup of sewage into your basement. A hailstorm can ruin any and all of the exterior portions of your home, from windows to exterior walls to the roof to outdoor decks. All of these unexpected incidents are why you have insurance. But do you have the right insurance?
This is where the language of your policy is important. Let’s compare two situations:
Jim’s home near San Diego is worth $3 million. It’s located in a gorgeous, hilly area with large home lots. Some of his neighbors have even planted small vineyards. Bob’s home is insured for its full value.
His next-door-neighbor, Bob, has a similar home with comparable square footage. Bob is also insured for the value of his home, but his homeowners policy includes extended replacement cost. (This is also sometimes called guaranteed replacement cost.)
One day in August, someone flicks a cigarette out the window on the freeway, catching some brush on fire. It’s been a dry summer, it’s a windy day, and soon a wildfire is raging through the hills. Thousands are evacuated. Both Jim and Bob are ordered to leave. When they get the all-clear to go back, both of their homes are gone. Nearly two hundred other homes in the area burned to the ground, too.
Fast forward to the following spring. Although they had similar homes, their rebuilding experiences were quite different. Bob was made whole because extended replacement cost was part of his policy; he got a new house with the same features and finishes as his old one. Jim, on the other hand, came up short.
Jim had taken out his homeowners policy almost a year before the fire. By the time it occurred, average home construction costs had risen 4% percent from the amount that was originally figured by his insurance agent. Plus, demand for construction services was high after the fire, which pushed costs even higher. So Jim had to pay nearly $270,000 out of pocket in order to reconstruct his home to the same standards.
Who would you rather be?
This is an imagined scenario, but the numbers are real. According to e2Value [LINK], a company that specializes in property valuations for insurance purposes, construction costs are expected to increase 4.5% in 2017-2018 due to inflation. This may not seem like a lot for a small remodel, but if you have a larger home construction project and your insurance agent doesn’t take this into account, you could be left holding a fairly large bag.
Kelly Klee agents stay abreast of this type of data and have the expertise and experience to advise you on the right levels and types of insurance needed to protect your home in the event of a homeowners claim. Call us at 844.885.1600 or click here to start the conversation.
To read an article that further explains extended replacement cost and how different insurance companies define it in different ways, click here.