Award-winning investigative journalist Ed Leefeldt’s stories have led to changes in credit card practices, voter registration and disability payments to prisoners. He has written multiple cover stories, hard-hitting features and executive profiles fo.
Ed Leefeldt ContributorAward-winning investigative journalist Ed Leefeldt’s stories have led to changes in credit card practices, voter registration and disability payments to prisoners. He has written multiple cover stories, hard-hitting features and executive profiles fo.
Written By Ed Leefeldt ContributorAward-winning investigative journalist Ed Leefeldt’s stories have led to changes in credit card practices, voter registration and disability payments to prisoners. He has written multiple cover stories, hard-hitting features and executive profiles fo.
Ed Leefeldt ContributorAward-winning investigative journalist Ed Leefeldt’s stories have led to changes in credit card practices, voter registration and disability payments to prisoners. He has written multiple cover stories, hard-hitting features and executive profiles fo.
Contributor Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
| Managing Editor, Insurance
Updated: Nov 22, 2022, 12:49pm
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It’s been a tough year for most of us, but not for building contractors and the companies that supply them. They can’t keep up with the demand for new and rebuilt housing.
And that’s not good news for homeowners. Surges in demand and costs for construction mean that you must have the best home insurance policy with extended Or guaranteed replacement cost coverage to enable you to rebuild your house after a disaster—particularly if you reside in a storm-ravaged state such as Florida or a fire-prone one like California.
Fortunately, there are ways to solve this.
To understand what’s the gold standard for home insurance, it’s important to know the four main ways you can get reimbursed for damage to your dwelling, or house structure.
A home insurance policy that pays reimbursement based on actual cash value takes depreciation into account.
“That means that you could end up with high out-of-pocket costs if your home needs to be rebuilt or repaired,” warns Karen Collins, who handles personal lines policies like home insurance for the American Property Casualty Insurance Association (APCIA). “It provides the least amount of protection.”
Depreciation is the usual way to appraise cars and other products, but do homes actually depreciate? Mobile homes do. And during the 2008-2010 recession, when 1.5 million homeowners were forced into bankruptcy, their properties often went into foreclosure as well.
But that’s not happening now. During the past year, housing prices have surged by more than 7% and single-family detached homes by 8%, according to a report by CoreLogic. That’s nearly double the yearly gains since the recession ended.
Next step up on the ladder is replacement cost coverage. This is better coverage for both your dwelling and your personal property (such as furniture and clothes). It will repair your home with materials similar to what was there before the damage, without any deduction for depreciation. It might be an easy decision to make, but will certainly cost more.
Replacement cost coverage is perfectly adequate—as long as the dwelling coverage amount stated in your policy covers all the rebuilding costs of your home. But relying on that number to be accurate can be a gamble, especially in these wild weather times.
Widespread disasters push up the local costs of materials and labor, as everyone clamors to get contractors to their houses. Suddenly your dwelling coverage amount can be insufficient.
For this problem there’s “extended replacement cost” coverage. While your dwelling coverage amount is still set at a specific number, this gives you an extra monetary cushion in case it’s not enough.
For example, an extended replacement cost policy might provide 25% extra over your dwelling coverage amount. So if your dwelling coverage is set at $400,000, extended replacement cost coverage would provide up to $500,000 total to rebuild, if you need it.
Not all insurers offer an extended replacement cost option with homeowners insurance, but these companies do:
“Guaranteed replacement cost” coverage works to fill the same gap as extended replacement cost: If local materials and labor costs have spiked, and rebuilding costs now exceed your dwelling coverage amount, this provides an extra cushion of protection so that you can rebuild your house without dipping into your own money.
It pays any cost needed to rebuild your house.
This coverage is designed “to give the policyholder total peace of mind that their property will be totally covered without any limits and without the risk of running out of funds,” says the APCIA’s Collins.
Guaranteed replacement cost coverage can be hard to find. These insurers offer it:
“Since October 2019, lumber prices have dramatically increased by roughly 60%,” says Greg Pyne, who heads up pricing data services for Xactware, which estimates the cost of building materials and labor.
Pyne blames the surge in part on COVID-19, but also on the fierce competition for supplies that this new housing and renovation market has created, which was already underway before the pandemic and didn’t slow down. For example, “sheathing material like plywood is up 75% year over year,” he says.
This leaves those whose homes have blown down or burned up at a serious disadvantage since their need for repairs is much greater and, in turn, they’ll have to pay more. And that’s particularly true in places like Lake Charles, Louisiana. Devastated by two hurricanes this year, the volume of insurance claims has risen by 4,000%, says Pyne.
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There’s a strong argument for hunting down an extended cost replacement home insurance policy. Weather experts predict that both the wildfire and hurricane dilemmas are likely to get worse due to global warming. And the additional cost may only be as little as 5% to 10% of your premium, says Collins.
Top-of-the-line guaranteed replacement cost coverage is likely to be very expensive, especially in high-risk areas, and is typically not available for older homes.
“High-end coverage is good for high net worth homes because they get personalized claim service,” says Janet Ruiz, spokesperson of the Insurance Information Institute, which represents property/casualty insurers.
But for most of us, somewhere in the middle is about right, with replacement cost coverage. And it’s easy to find, says Ruiz. “You can buy the right amount of coverage and have enough to rebuild with standard carriers.”
