Why is my home insured for more than its market value in Wilton CT?
This question and one of the most difficult questions for an insurance agent to answer and for a client to accept. There is an old saying location, location, location. We hope that this article will help with this conversation.
As a homeowner in Wilton or Ridgefield, you understand what you are paying for your home and the retail comps in the neighborhood, but how does this translate to replacement value.
Let’s use this as an example. Mr. and Mrs. Homeowner are looking at two homes, one is in Westport, CT and the other is in Wilton, CT. All factors of the home are the same. 4,000 square feet, 750 sf finished basement, both on the end of an exclusive cul-de-sac. The home in Westport may trade at $1.5M while the home in Wilton may sell for $1M.
Understanding that the home insurance carrier needs to insure the homes for their replacement cost, how is this determined and what is the proper value? Regardless of which town your home is located in, the insurance carriers are going to assign a cost per square foot for rebuild value. It cost about the same to rebuild the home in Westport and Wilton. Roughly you are looking at a rebuild value of $1.3m.
There can be some variation in construction costs based on your contractor and the cost of materials, but home insurance carriers need to use a broad stroke approach when determining replacement value. In Connecticut and especially Wilton and Ridgefield, there are many older homes, these homes may have been built in the 40s and 50s when you could build a home for $25-$50 a foot, but if you were to rebuild that home in 2020, the current replacement value could range between $200-$400 a square foot. This means, you may be able to purchase an older home in an exclusive town such as Wilton for a better deal than new construction, but this doesn’t diminish the rebuild value.
The best way to understand your home insurance coverage is to speak with a trusted insurance advisor that can explain the differences in coverage to you. When you call Mills & Mills Insurance, one of advisors can take your though the insurance buying process.
Types of Policies – There are three basic types of coverage – Guaranteed Rebuild, Replacement Cost and Actual Cash Value.
- Guaranteed Rebuild pays the cost is to repair or rebuild your home using like material, quality of construction and technique regardless of what the replacement value on the declaration page states. (this is the best type of policy in our personal opinion)
- Actual Cash Value is defined as Replacement Cost less depreciation and wear and tear. If possible, we recommend staying away from this type of policy unless it’s a last resort.
- Replacement Cost coverage refers to the cost of reconstructing your home and its unique features in today’s marketplace using similar materials, design and technique at your current location up to today’s building code.
Market value: reflects what someone is willing to pay for your home in today’s market which is influenced by demographic and the current economic state. This varies greatly between town lines.
Construction Costs: have risen over time as labor and material have continued to increase. In addition to increase cost of labor, material costs have also increased. These two factors create the replacement cost of your home.
Other Factors Influencing Cost: It costs considerably more to rebuild your home than you think, especially when the insurance carrier is paying for the rebuild.
Here are some other factors to take into consideration:
- Location– The cost to build the exact same home in Londonderry VT as one in Fairfield County CT is materially different. Even within Fairfield County, there is a difference between towns.
- Is your home claim total loss or a partial loss? In most instances a partial loss is more expensive than a total loss due to the detailed planning and matching of materials needed to repair and rebuild around existing structures.
- Replacement cost includes fees for engineering and architectural services, permits and legal fees associated with repairing or building your home and dealing with the local regulators.
- Using like material to put your home back together. If you have plaster on wood lathing walls or antique wide pine flooring or other unique features that were destroyed, that is what is replaced. Your insurance policy reflects replacement which means exactly that.
- Rebuilding a home after a claim, begins with demolition of the damaged structure and personal property including hauling and fees to dispose of the material. This is part of the cost to replace and rebuild your home.
- Rebuilding to code can add a significant cost to reconstruction. This can include changing the design of your home, if it is a flood zone. A house that once had a basement, may now be required to be elevated to meet new flood zone restrictions.
- The age of your home can be a factor, the greater the cost to reproduce the unique features given the difficulty in sourcing some of the materials as well as the specialized craftsman necessary to rebuild the home.
- Insurance inflation- When a builder understands the cost is being absorbed by an insurer and in addition, there is an urgency to return you to your home, costs tend to escalate.
Market prices of existing houses regardless of the town the home is located in have little bearing on the insurance coverage you need and instead, you should focus on what it would cost to rebuild your unique home.
It is important to understand what replacement cost is of your home, how it is determined and how your policy will respond. Homeowners should focus on what it would cost to rebuild their home today and work with their insurance agent to find other ways to reduce costs rather than arbitrarily reduce the limit because of comparable sales.
Mills & Mills Insurance have three convenient locations in lower Fairfield County: Wilton, Darien, and Westport. We serve all of Fairfield County including: Greenwich, Weston, Westport, Wilton, Ridgefield, Redding, Easton, Fairfield, Southport, Trumbull and all of Westchester County and Long Island. When partnering with us, we will give you all the necessary information and options you need to make the best choice of insurance company and policy. Give us a call today at (203)-655-6974.
Serving the following zip codes within Fairfield County, Connecticut:
06830 • 06831 • 06836 • 06883 • 06880 • 06881 • 06888 • 06889 • 06897 • 06820 • 06879 • 06875 • 06876 • 06896 • 06612 • 06897 • 06825 • 06828 • 06890 • 06611• 06853• 06824• 06890