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Home Insurance Replacement/Rebuild Cost. Homeowner Beware!


Insurance companies don’t care about the market value of your home.  I will restate to annoy and alarm, insurance companies don’t care about the market value of your home.  Insurance companies however are very concerned with the replacement cost or rebuilding cost of your home.  Just about every homeowners insurance contract requires you insure your home at what the insurance company deems the replacement cost of your home.  If you don’t insure your home for replacement cost every homeowners insurance contract has built in coverage reductions and or exclusions.  The built in homeowner insurance contract pitfalls can leave a homeowner without enough coverage to rebuild or repair after a loss.


New Construction Cost Savings

Typically, new homes built today are part of a housing development which allows contractors to purchase lumber, electrical and plumbing supplies in bulk at discounted prices. These large volumes make square foot costs much lower than building just one home at a time.

Home Reconstruction Cost More

Reconstruction cost – the cost to rebuild your home to original specifications with similar materials and craftsmanship – is generally more expensive than building a new home from scratch. In fact, building experts say that it costs up to 50 percent more to rebuild a house than to build new. Why? Specialized labor costs: Builders used for reconstruction require a higher skill set, as they have limited onsite mobility and must work around existing structures and power lines using smaller machinery. New codes: Rebuilding may require contractors to meet new building codes put in place since your home was originally built.

According to a new study by Xactware, a Utah company that keeps up with housing and repair costs, to rebuild a damaged home went up 3.95 percent nationwide last year(2008). The exact rebuilding cost is usually expressed in dollars-per-square-foot. For instance, to build a 2,000-square-foot home at $100 per square foot equals $200,000. To calculate the cost to rebuild your house, you’ll need to know the following:

– The per-square-foot cost in your neighborhood to build and to rebuild. Keep in mind expensive extras such as high-end appliances; cabinets and other materials can put the cost per square foot upwards of $400 to $500 for very expensive homes.

– How much damage has your home sustained? Before the rebuilding process begins, the damage must be removed and disposed of and the home must be prepared for rebuilding.

A 12-by-15-foot room equals 180 square feet, and the per-square-foot cost can increase by as much as 50 percent for readying a space for reconstruction. So the $100 per-square-foot cost goes up to about $150. As an example, if 500 square feet of your home is destroyed, the replacement cost could be $75,000.

Why You Can’t Rely on Market Value

Home market values reflect today’s economic conditions (remember the 2009-2010 housing and housing derivative market melt-down), taxes and many other factors that have little to do with home reconstruction costs. Market value is also influenced by other factors such as the location of the home, the quality of the school systems and the desirability of the neighborhood.

Don’t be a victim of a homeowners insurance contract reduction or exclusion, insure your home for REPLACEMENT COST-REBUILD COST.