Question About Homeowners Insurance

[ksigmtsu]

One of my clients had a question about homeowners in NY State, I know less than nothing about homeowners but here was his question.
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Do you know where I can find HO8 insurance? (Or some form of policy that would resolve the problem of having a home WORTH $125k-$231k but with a replacement cost of $3.3M? Obviously we would not actually want to build a $3.3M house in this neighborhood ... but to rebuild what we are buying, that would be the "actual cost").

Our goal would be that it replace/repair damages with a normal "out-of-pocket" of $1k max and replace the home with a reasonable residence in case of total loss. AND that "total loss" be considered (like a car?) anything that would cost as much as a stated value (say $300k? $500k?) instead of "actual" duplicate replacement.


I don't think it would be possible to have a total loss (short of an earthquake, volcano, or sink-hole ...), but obviously the insurance must be in place for the mortgage (which will be $125k).
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If there is someone in NY I could refer this to, I'm sure he'd be happy to work with an agent there I just have no idea even where to start here.

 

[Sales71]

Its hard to get the insurance company to go over 1Mil on a home especially if its small home that will be replaced at 200k-300k. Why is this house going to cost 3 mil to replace?

 

[ksigmtsu]

Issue was the purchase price was low but the home itself is over 5000 sqft and the replacement cost would be very high.

 

[djs]

Sales price, assessed value, appraised value and reconstruction costs are unrelated. They can be all over the map.

There are many areas where the reconstruction costs far exceeds the sales value of the home. There are areas where the sales value of the home far exceeds construction costs. Just depends.... This isn't a problem for insurance.

A homeowners policy needs to be based on reconstruction costs, not on sales value of the home.

Somebody is fulling themselves if they think the house would cost $3.3M to rebuild if its 5000 sq feet. Thats over $600 a sqft. Yes, a house can run that high, but it has to be something really special.

Dan

 

[ksigmtsu]

This house also contains computer equipment worth a great deal, houses a colo center and fibreoptics etc.

The question is more, is this possible to insure easily and would it cost a friggin fortune. I don't think he's delusional about the rebuilding cost but I've never seen the property.

Is this something a P&C agent shouldn't have any issue handling?

 

[iiinycboi]

if its over 1MM i think chubbs and lloyds of london does this, but i remember there is a min premium at 10k,(i could be wrong though, i dont do much 1MM+ homes)

also from what you said are the including the equipment in the rebuilding cost?? (or the building alone is 3.3mm) how did they estimate that cost? Most of the companies i work will will use Marshall and swift's estimate.

im a ny p&c broker, i can try to market this if you would give me their contact info

also are they living it in? or renting out

 

[reductable]

If I understand what you're asking correctly, that the house is worth more than said owner paid, would never want to rebuild for the full 3.3M limit and don't want to pay the premium to insure for the full 3.3M limit.
I think you should ask for functional replacement cost valuation. This replaces the expensive with the less expensive. You insure the house for a lower limit than the actual replacement cost and repairs are functional/less costly materials (ex: gold leaf floor tiles replaced with regular tile). If you don't rebuild, you get market value.
The FC&S Bulletin:

“Functional Replacement Cost Loss Settlement (Forms HO 00 02,
HO 00 03, and HO 00 05 only)
HO 05 30 10 00
This endorsement may be used when broader coverages are desired than those provided by the HO 00 08, but the insured or insurer does not wish to insure to full replacement cost. This might be the case with an older, ornate home that incorporates stone-, wood-, or plasterwork not readily available.
Replacement cost may so far outstrip market value that to insure based on replacement would do a disservice to the insured, since it is unlikely that the home could be replaced exactly as it stands. Therefore, use of this endorsement provides the insured with the broad range of coverages available in the ISO program, yet allows a more realistic amount of insurance to be selected.
The coverage A limit of liability is chosen based on "functional replacement cost," that is, the amount it would cost to repair or replace using materials that are functionally equivalent to obsolete, antique, or custom methods and materials. For example, plaster walls would be replaced with dry wall, pocket doors with plain doors. The loss settlement provisions substitute "functional replacement cost" anywhere "full replacement cost" appears.
Modified functional replacement cost loss settlement endorsement, HO 05 31, is virtually identical except that if the necessary amount actually spent to repair or replace is less than the actual cash value of the part of the damaged building then the loss is settled on an actual cash value basis.”
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[Josh]

This house also contains computer equipment worth a great deal, houses a colo center and fibreoptics etc.

The question is more, is this possible to insure easily and would it cost a friggin fortune. I don't think he's delusional about the rebuilding cost but I've never seen the property.

Is this something a P&C agent shouldn't have any issue handling?

That's not replacement cost, that's personal property. Odds are this needs to be some type of a commercial policy at that. I'm guessing this isn't just for their recreational purposes. Most HO will specifically exclude business activities and that would definitely be considered one.

It's been more than a few years, but Part A of a HO policy is building, Part B is other structures (not attached), and part C is *personal* property. The rule of "if you picked up the house, everything that would shake out" is a good starting point. The fiber optics may be considered a part of the structure, but the computers and server racks aren't.

That make more sense? It's like trying to get good LTC coverage on your health insurance or trying to get your car insurance to pay for a broken arm while you were canoeing 25 miles away from the nearest automobile you own.

 

[djs]

You have entered the world where it probably has to be a commercial policy, but now I see the problem better.

Or, perhaps the house is a home policy, but the colo facility is a commercial policy.

Heck, this would take a decent conversation with the client to figure out the what, why, where of coverage for this. Not hard to do, but the client has to be realistic.

Dan

 

[russelltw]

Sounds like a home owners policy for the structure and personal contents in combination with a commerical contents policy for the computer equipment and etc. If the equipment is used for business (often as little as 1%), any claim could be denied under a homeowners policy. Many clients don't understand what they say or have could get their claims quickly denied.

Also remember the insurance company has the rebuild the house, so it makes no difference what the purchase price is, insurance has to replace the house. The value of the land is another factor. If you are in an area of high property value, that value is not lost in the event of a fire. The property still retains it's value, the burnt ashes of the house does not.

Important note: In past, I know of adjusters who would go to a "garage" behind the house and see a room full of rocking chairs the client made on the side. Adjuster would compliment client on the quality and ask how much he sells them for. Client would respond that he makes a little cash on the side building and selling. Later the adjuster sends a decline letter for loss on garage due to business use.