Do You Adjust Your Home Insurance Structure Cost?

For the first few years after we moved into our house in 2007, the value of the home declined on pretty much every level.  Comparable houses went for less.  Average square foot went less.  Zillow told us it was worth less.  Even our property tax assessments told us it was worth less every year.  We didn’t trick ourselves into thinking it was worth more.  We knew darn well, just like everybody else, that it was worth less.

Well, almost everybody.

Allstate apparently has not gotten on board with the lower value theory.

Our homeowners policy is probably just like every other one in that it defines the maximum replacement cost if the structure had to be rebuilt.  This makes sense, but what doesn’t is that it has risen each and every single year, and not by a small amount.

This year, the maximum value of the house plus other structures (garage, deck, what is this, I’ll have to ask) is totaled over $120,000 higher than the value that I would expect we could sell the house for.

And that selling price includes the lot as well.

Our house is nice but it’s nothing fancy.  I know darn well that Allstate wouldn’t put granite counter tops in the event that the house or kitchen needed to be re-built.  They would pay for the same Formica counters we have now.  Sure, they’d ‘allow’ us to pay the difference, but my point is, I see no way where re-building our house would cost anywhere near the maximum value that they are reporting.

The two variables I wonder about are demolition and landscaping.  Assuming the worst, that our house suffered a catastrophic fire, I’m assuming that part of the cost would be the removal of what would be left standing to the point that they could start from scratch.  I would also assume that since the current house has grass, bushes, and such, that these would be replaced since they’d be lost during either the hypothetical fire or the demolition process.

Even with these two factors, plus maybe other stuff (re-connecting all the utilities), I can’t see any scenario where re-building our home would approach the maximum value that we’re insured up to.

So, I ask, dear readers:

  • Have you ever had your insurance provider adjust the maximum value of the house?
  • What type of savings have you achieved if so?
  • Are there other costs that I’m forgetting?
  • Am I missing something glaringly obvious?
  • What other questions or scenarios should I ask my agent when I give a call to discuss this?

We do have content coverage, which I’m fine with, and we have guest medical costs and all that, I’m strictly looking at the line items that refer to a potential structure replacement.

8 thoughts on “Do You Adjust Your Home Insurance Structure Cost?”

  1. My insurance carrier adjusts my coverage amount every year. They claim it to be an inflation adjustment. I know for a fact that I can replace my home for less now than when it was built 3 years ago. Needless to say, I am currently shopping around.

    • We must have the same company *lol* Honestly, their rates on auto and umbrella coverage are unbeatable from what I’ve done in comparison, so even if the homeowners is a tad higher than I think is necessary, I still think I’m getting a really good deal and have had excellent customer service. That helps.

  2. You make a good point about the demolition costs, which many people do not consider. Otherwise, insurance companies generally base the replacement cost on a per-square-foot basis. They may argue that construction costs have risen, which would make the replacement cost rise even in a declining housing market.

    It wouldn’t hurt to contact 1-2 additional insurance companies to get some competitive rating. Look to bundle several policies together to get the best rates: for example an auto policy, homeowners, and umbrella policy can get several discounts to get the rate down.

    After you have some numbers from competitors, get in touch with your current company to discuss the findings.

    • True. I am happy, though, with the other coverage I have with them and have comparison shopped that, so I’m not sure it’s worth the time to shop all three packages I have. Even if they come in with a better number on home, history has shown that the auto numbers can’t touch what I pay.

  3. My Sophomore football couch always said It’s a great day to be alive…funny. This article raises my eyebrows big time. I haven’t ever questioned my insurance, it comes out of escrow and I never gave it a second thought, till now. I too purchased my home when the market was in its prime and my house has lost nearly 100k in value since. I think it is time to drop a call to State Farm;-)

  4. Luckily my current insurance company never adjusted it until this year. The cost of rebuilding my home went up by 10k, meanwhile I tried shopping for new insurance and the cost to rebuild my home was at least 50k higher than what my current insurance company had me at. so I decided to stay put.

    If I understand it correctly, the cost to rebuild a house keeps going up even though the value of the home is going down because the material price is increasing and so is labor. I am probably wrong but that is what I’m going with.

    • My issue is that construction of new houses is starting again, and although the prices are lower than what they were before the bust, houses with comparable square footage and options are being built for plenty less than what my insurance company says it would take to build mine. Surely these companies aren’t building them at a loss, so that’s part of why I think there’s an overestimation.

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