I am trying to quote a customer for a rental home and the carrier calculates the replacement cost that is less than the purchase price and the Market value. My customer wants to buy coverage for the purchase price. I know he would be paying more for the same. Are we gaining anything by increased coverage (above RCE) or are we just overpaying? (I know in the event of a clain, the payment will not be more than the replacement cost.)
Replacement cost Vs Market Value
- Thread starter Yashassu
- Start date
- 2,264
Purchase price and market value have little to do with replacement cost because you are paying for the lot and location in purchase price. Figure what the average cost per square foot is in the area and educate your customer. A rebuild cost of $500K is not going to net a rebuild of $1M
- 2,625
Overpaying.
For nothing.
In the event of a loss the carrier will pay the cost to repair or the cost to rebuild.
If he insures for $500,000 and the loss is $450,000 (total destruction) he's going to pitch a bitch as to why he's not getting the extra $50,000 that he "paid" for. And he's going to conveniently forget what you told him.
Maybe you can find a carrier that will write "agreed value" on the home. Agreed value means that, in the event of a total loss, he gets the Coverage A limit regardless of how much less is the cost to rebuild.
For nothing.
In the event of a loss the carrier will pay the cost to repair or the cost to rebuild.
If he insures for $500,000 and the loss is $450,000 (total destruction) he's going to pitch a bitch as to why he's not getting the extra $50,000 that he "paid" for. And he's going to conveniently forget what you told him.
Maybe you can find a carrier that will write "agreed value" on the home. Agreed value means that, in the event of a total loss, he gets the Coverage A limit regardless of how much less is the cost to rebuild.
- 2,196
Yes, you will be getting more coverage. Most insurers allow at least a bit of leeway here, ask your client how much more they want to insure it for.
Keep in mind that RCE are just estimators, more often than not they are wrong or at least not totally accurate. Send the RCE to the client to have them go through it with a fine tooth comb. Additionally consider increasing the Ext Rebuild Endorsement.
I usually do this the other way around. Market value with a gross rent multiplier plus demolition and debri removal costs because the cost to rebuild is too damn high! Slumlords would rather pocket the money and walk away selling or donating the vacant lot than rebuild.
Policy Monkey
Super Genius
- 112
I say check the regulations in Texas. Florida has always had laws against over insuring a property. More recently they made it illegal for an agent to send an RCE to a lender or an insured. The lender can't legally even ask for the RCE any more.
I often have to explain to the client that the Coverage A (Dwelling) has nothing to do with a market price, loan amount or taxable value. Those are very different numbers, calculated in very different ways. The Dwelling coverage represents the cost to rebuild the structure, and that number must come from each carriers own software.
And besides, would you really want your insurance coverage as volatile as the real estate market? You'd be changing your limits by the week.
I often have to explain to the client that the Coverage A (Dwelling) has nothing to do with a market price, loan amount or taxable value. Those are very different numbers, calculated in very different ways. The Dwelling coverage represents the cost to rebuild the structure, and that number must come from each carriers own software.
And besides, would you really want your insurance coverage as volatile as the real estate market? You'd be changing your limits by the week.
myfakename
Super Genius
- 163
In my neck of the woods there are many houses were the land value (lake) might equal 50% of the "home" purchase price. I get to explain replacement cost =/= sales price often.
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