As property insurance rates increase, people are looking at their home insurance policies and one of the most common questions has to do with the limits for the buildings and contents? Where do they come from?

Here’s a quick review of some of the key factors to examine when weighing your policy.

What’s the Difference between Market Value vs. Rebuild Cost?

Market values of properties can fluctuate profoundly depending on location, demand, availability, improvements made to the home, school district, etc. But as we saw during the sub-prime mortgage crisis of 2008 when market values decreased, and are seeing now with record low inventories and market values increasing, costs to rebuild homes are based on totally different factors.

Rebuild values are based on exactly that – what will it cost to rebuild my house after a serious covered loss? They fluctuate based on the cost and availability of materials, labor, and equipment. Costs of a complete rebuild typically also includes the costs of clearing and preparing (grading) the land—including demolition of existing structures. Costs often overlooked are architect and permit fees. With many insurers, if you used a decorator to decorate your home initially, those fees would be paid again as part of the claim to complete construction.

When insurers value a property they focus on the structure’s square footage, features (from standard or state-of-the-art materials to smart appliances), as well as interior and exterior finishes.As most policies provide replacement cost coverage, the insurance company requires you insure to the rebuilding value.

What Does this Mean for You?

You want your policies to contain replacement cost coverage, and a guarantee beyond that if available, so you have adequate coverage in the event of a serious loss. Otherwise, you may have to pay for some of the rebuilding out-of-pocket. As mentioned, we are currently experiencing a material and labor shortages which are driving up construction costs; if disaster strikes, you want your policy to fully pay for the clean-up, planning and rebuild of your property on the same lot. Many policies require you rebuild on the same foundation, and some municipalities do, too, so you don’t have options to alter the rebuilt property’s size, etc.

Questions? Consult MAGIS.

At MAGIS, we’ve built our reputation by helping our clients choose the most appropriate coverage for their property—from luxury homes and vacation properties to autoand watercraft so what you have is insured appropriately. Our licensed professional agents are here to help you make informed decisions about protecting the assets you’ve worked so hard to acquire.

Have questions about your current policy or looking to make a change? Contact us today!