Sunday, January 18, 2009

The Hazards of Insurance

We are in the process of shopping for homeowners/hazard insurance. It's been very frustrating so far (and way more expensive than Virginia). When we give the agent details like, home size, zip code, basic material description, their model spits out a quote for the replacement value of the home which is considerably above our purchase price!!!!

They claim it is based on the cost to rebuild. I then explain it is a brand new home that was just built in the last 6 months and is being sold for less than what their model is telling them. Both materials and labor have come down considerably, so I find this explanation a bit hard to swallow. I am assuming their model is out of date, but they won't insure for less that what their model estimates.

For those who may be in the market, the California Department of Insurance has a nice premium survey tool that can be used to get an idea of competitively priced policies.


Paul said...

This will be a problem for a long time because of the nature of the source data relied upon by the insurers for "replacement cost." And as you have learned, if you don't accept or agree to the insurer's "replacement cost" numbers, the insurer won't provide a replacement cost endorsement. Call it a stealth insurance rate increase. However, I have successfully persuaded underwriting at the insurer that I think you intend to use, that the source data relied upon isn't valid. Although I didn't get the lower replacement cost I thought appropriate, underwriting was willing to negotiate with me in light o my evidence of actual replacement cost data.

Good luck!

Jacob said...

Ah the rewards of home ownership, taxes, fees, more fees, maintenance, insurance, liability, debt, stress, and immediately being underwater due to fees if you sell.

But for some reason I still want to buy at some point... Go figure.

I would think you could insure for a lesser amount so long as it at least covered the mortgage and the policy would state that only $x will be paid regarless of the cost to rebuild if the house is destroyed.

But insurance companies like all other companies are hurting for $$ and their fees will be sticky on the way down.

sacramentia said...

Jacob, Your logic is good, but that isn't how it works. I talked to over 5 different agents about this same issue and they all insist that properties must be insured to what they consider replacement cost.

Recently I purchased a home for 110k that I had to insure at 335k for replacement cost. That was the best quote. I bought this one cash and it still didn't matter.

The strangest one is that on my personal residence the replacement cost went up 12% from 2008 to 2009 and my rates are up. Nothing in RE costs MORE in 2009.

It is just another example of our laws 'protecting' us from ourselves and wasting money. I should be able to insure for whatever loss amount I need.