Figuring Out Replacement Cost on a House Can Be a Tricky Matter
Q Recently 1 was reviewed my homeownerÛªs policy. My house is insured for $147,000.1 thought it should be insured for more, and called the brokers. They said the coverage value would go up slightly because of my inflation rider. On calling three other companies, I was quoted $170,000, $175,000 and $200,000 of coverage. Houses similar to mine are selling for as much as $300,000.</br></br>A There are several ways to go about this, and already you have tried two. One is to get insurance broker appraisals. These people are knowledgeable and generally trustworthy, but you must keep in mind that the higher the coverage the higher the premiumÛÓand thus the higher the commission.</br></br>Another step is to find out the value, or selling price, of comparable properties. You want to insure only the building and not the land, which is generally not destroyed in a catastropheÛÓdespite the loss of beachfront land in the Carolinas in Hurricane Hugo. You can get a reasonably good ratio of land value to house by looking at your property assessment, which usually splits the two. Or research the selling prices of undeveloped land comparable to yours.</br></br>Another source of information is your local builders association, which should be able to give you the approximate current construction cost per square foot for residential housing in your area. To their estimate you can add the value of special features you haveÛÓsolar water heater or . marble fireplace, for example.</br></br>The annual inflation adjustment is a good featureÛÓbut if youÛªre living in a booming real estate market, the standard inflator of 3 to 4 percent a year is likely to be low, and you should do your own annual adjusting.