As you all may be aware, in recent past years, we have witnessed the slow and steady decline of our economy. Home values have dropped drastically. The average household income has also been reduced. Along with these is the tumbling of the dollar value.
One would think that since home and dollar values are decreasing, the cost of materials and labor to rebuild or replace the home will decrease too. That, however, is not the case. In fact, the cost of materials and labor has gone up quite a bit over the past years. This has a very negative effect on the ability of the average homeowner, or any homeowner for that matter, to replace his or her home in the event of a total loss. Take for example the cases of recent wild fires in Southern California. In those cases, claims report from multiple independent surveys show that the cost per square feet to replace an average home can be as high as $700. That is particularly troublesome in light of the fact that most current homeowner policies have replacement cost insured as low as $100 per square feet, with a maximum cap at 125% on the replacement cost. Now you do the math. In the event of a total loss, if it costs as much as $700 per square feet to replace your home, how much money will you have to pay out-of-pocket to replace your most-valued asset? This is on top of your deductible. Of course, not every home will cost $700 per square foot to replace. But the point is clear, whether it is $200, $300 or $400 per square feet, we will be paying more.
The good news is the insurance market is very soft at this time. There are many insurance companies currently offering great coverage and protection with a low cost. I would suggest that you contact your agent and update the replacement value on your home. If you do not have an agent, please feel free to contact me with any questions or concerns at (310) 475-9990 ext. 1310 or (949) 791-7310.