When it comes to securing the right insurance, accuracy is key. One of the most critical components of a homeowners insurance policy is the replacement cost. This is the amount that your insurance company will pay out in the event of a total loss or damage to your property.
At Doeren Mayhew Insurance Group, we understand why an accurate replacement cost is essential for your insurance policies — and how you can go about determining the correct value for your property.
Importance of Verifying Accurate Replacement Cost
Proper Coverage
The replacement cost determines the amount of coverage you have in the event of a total loss. If the value is too low, you may not have enough coverage to fully rebuild or repair your property. On the other hand, if the value is too high, you may be paying too much in premiums. Keep in mind, you’ll want to consider the current cost of repairs as well as material costs to ensure you have enough coverage.
Underinsurance Issues
Underinsurance occurs when the limit of insurance coverage is less than the actual cost of repairing or replacing the property. This means that in the event of a loss, you’ll have to cover the difference between the policy limit and the actual cost of repairs or rebuilding. An accurate replacement cost helps ensure you have sufficient coverage to avoid underinsurance.
Prevent Disputes
In the face of a claim, an accurate replacement cost value can help prevent disputes between you and your insurance company. Carefully review the dollar amounts listed for dwelling, other structures, and personal property on your homeowners insurance. These amounts determine the amount your insurance company will cover in the event of a claim. Ensure these amounts align with the cost it would take to completely rebuild your property to prevent disputes in the event of a claim.
Consider Inflation
Replacement cost values should be regularly reviewed and adjusted to account for inflation and changes in building costs. Given the impact inflation has had on replacement cost values recently, this is extremely important to take into account.
Understand Policy Endorsements & Additional Coverage
Coverage options like ordinance and law, water backup, equipment breakdown, and service/utility line should be considered to provide adequate coverage in all areas, depending on your risk tolerance.
Peace of Mind
Knowing that your property is properly insured can deliver a sense of long-term security. By having an accurate replacement cost/property value, you can rest assured that your car and home are protected in the event of a claim.
How to Determine the Correct Amount for Replacement Cost
Hire a Professional Appraiser
The best way to establish an accurate replacement cost is to hire a professional appraiser. They’ll assess your property and provide a detailed report outlining what it would cost to completely rebuild the property. Keep in mind that appraisers may use different methods to determine the value, such as the cost approach, sales comparison approach, or income approach.
Consult with Your Insurance Agent
Consult with your trusted insurance agent to determine the appropriate replacement cost or property value that should be listed on your property. They can assist by using industry tools to determine a baseline amount, and then customize your coverage according to your unique property characteristics. Because property replacement costs are not the same as market value, it can be difficult to determine an exact dollar amount that’s appropriate, but your insurance agent is experienced in determining the appropriate level of coverage for a wide variety of property types. They can also offer guidance on necessary documentation to keep on hand in the event of a claim, so you can accurately show the value of your property prior to the loss.
How We Can Help
An accurate replacement cost value is essential for ensuring that you have proper coverage for your valued property. By taking the time to determine an accurate replacement cost, you can avoid underinsurance and future disputes. Taking these precautionary steps up front will ensure that you have enough coverage to protect your property in the event of a loss.
At Doeren Mayhew Insurance Group, our insurance agents are thoroughly experienced in working with clients to determine the property value and replacement cost that should be listed on their policies to ensure adequate coverage. Contact us to discuss your insurance needs to see how we can help.