There are many questions you will encounter in this life. Is there indeed, a God? Would you like fries with that? Can you believe what they just tweeted?
The other question encountered by anyone providing homeowners insurance these days is the very one that I reference in the title of this post. Why am I insuring my home for THIS when it is worth THAT?
First, I'll answer it with a lame cliché ... you just don't compare apples and oranges. Ever.
What your house is worth, or is appraised at as of today, may or may not be in alignment with what it will cost to replace your home. After all, the latter is the reason you have Homeowner's Insurance for in the first place.
Allow me to illuminate you as to why the difference:
• If you own a home that is a bit older, matching labor and materials, along with custom woodwork, isn't exactly easy. Folks (artisans) that do this type of work are often harder to find and more expensive when they are found. And the purpose of your Homeowner's Insurance is to replace/rebuild the home you live in, as it exists. That last sentence will become quite popular if you read me going forward.
• It's one thing to value a house already built, it's quite another to take into account the cost of demolition and debris removal before actually rebuilding your house. Homeowner's Insurance takes those costs into account. Hence, another difference.
• Supply vs. Demand. Many losses come in large doses. Think Hurricane Katrina. Top-notch Homeowner's Insurance also takes this into account. A storm of some kind can take out an entire neighborhood. So can a fire. So can any number of things. Contractors in that area will charge more to replace those homes, because the demand is up and the supply to correct those things is more than likely down, or not what it should be compared to the normal construction market.
• Speaking of contractors, and you can ask them yourself… those specializing in reconstruction and restorations often charge more for their services. While you may have a friend or family member in the construction business, rebuilding your home won't be based upon their quote alone. It can't be. The reality is that there is no guarantee that they’ll still be in business when that loss occurs. And the cost of materials is subject to drastic market changes. Much like a commodity. Not to mention the cost to truck that lumber, sheetrock, etc., to your location. It’s subjects to the wild whims of the marketplace.
• And how about these: local construction costs, amendments to building codes since the home was built, type of construction materials, style of home, fireplace(s), number of rooms, square footage, home improvements, style and type of roof, and how good looking you are.
Okay, kidding on the "good looking" part. But I do offer a number of wonderful credits! Now that you understand, I hope it is understood. While it is rarely a bad idea to revisit your Homeowner's Insurance to ensure you aren't over-insured or under-insured, at least now you'll have a good understanding of what goes into that often misunderstood calculation. And if you need help understanding it… I’m here for you. But for now…
I leave you with this!