Or for that matter how much insurance should I carry on my home?
We recently had 1st time home buyers who elected to get a number of quotes for their home owner’s insurance. A simple fact finding / comparison cost mission turned into a big brouhaha. This is what they were told:
- Insure for the cost to rebuild with an rider for inflation
- Insure for the purchase price
- Insure for the amount of the mortgage
Actually this is unbelievable since only one of the three is correct and #1 and #2 were quotes from insurance agents and #3 was the opinion of the mortgage broker.
Drum Roll Please:
Replacement cost is NOT:
- The market value of the home
- The home’s purchase price or the cost of the land
- The outstanding amount of any mortgage loan.
When buying a new home, be sure to obtain a replacement cost estimate. The easiest way to do this is have the appraiser give you the cost. Or you can check with a knowledgeable insurance agent to help you.
Just so you don’t loose sleep wondering what the difference is; in the example scenario the replacement cost was $175,000, the purchase price was $350,000, the mortgage amount $332,500. If our clients had insured for anything other than replacement cost the policy would have cost them a lot more. Hey you don’t think that the insurance company is going to build you a $350,000 home when that $175,000 home burns to the ground, do you?
Requisite Disclaimer: I am not an expert in underwriting insurance and this should not be construed as advice. As with any question should you seek advice please consult a professional in the field.
Need a quick and very competitive insurance quote?
Call Nick Yoskin (215) 327-0997 (I’m not allowed to say the name of the company but it’s one of the major ones).
FIND A PHILLY HOME WORTH INSURING