how to determine value to insure home

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PostPosted: Mon Jun 29, 2009 3:19 pm   Post subject: how to determine value to insure home  

generally homes are not totally distroyed. part on home value is in concrete and decks

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PostPosted: Mon Jun 29, 2009 4:59 pm   Post subject:   

Needs to be moved to Home Insurance....



Yup, this is a big scam that carriers such as State Farm run. They automatically increase your limits (and, as such, your premium) each year based on what they feel the value of your home is. Problem is that they factor in your land as well. It's not likely that your land is going to be damaged in a loss. It also takes an act of god to get them to lower your limits. It's free money for them.

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PostPosted: Tue Jun 30, 2009 12:35 am   Post subject:   

I had the same problem last year with my homeowner's insurance. They raised my limits an incredible amount, while the area property values were decreasing drastically. My neighbor had a FNMA (Fannie Mae) appraisal done on his home, which is almost identical to mine, and I was able to borrow a copy. I faxed it into Nationwide and explained that it was my next door neighbor and that the houses had the same layout and construction. I also submitted the tax value and records, which I found out really did not help at all.



Long story short, Nationwide agreed to lower my limits...but not near as low as I thought they should have. I live on 2 acres in the city limits, so the land is probably 1/3 of the value of the property. I absolutely agree with tcope...How is my land going to be damaged!??

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PostPosted: Tue Jun 30, 2009 2:36 am   Post subject:   

Quote:
Long story short, Nationwide agreed to lower my limits
As the insured, you have the right to determine how much insurance your buying. When you buy gas they don't tell you how full you have to fill your tank. Insurance companies make it extremely difficult to obtain less HO limits then they think you should have. It's really a scam to make money as it's almost impossible for land to be damaged. Also, it would be extremely unlikely that your home would be a total loss. The policy already has safe guards built into it to protect the insurance company. It's the coinsurance clause, which states you need to insure the home for at least 80% of it's value or you loose things such as RCV.
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PostPosted: Tue Jun 30, 2009 6:37 am   Post subject:   

Quote:
My neighbor had a FNMA (Fannie Mae) appraisal done on his home




This is the first problem. An appraisal on a home is not the same as the amount of money that it takes to rebuild the home. Take Detroit...There are reports that many homes in Detroit can be purchased for less then 10K. First that doesn't mean that they are only worth 10K - it just means that is all someone is willing to pay for it. The real point is that there is no way that the house can be rebuilt for 10K, even though that is what it is "worth" on the open market.



The second problem are the inspections. I do many commerical buildings, but with dwellings where inspectors don't actually go into the house it becomes a guessing game. Try and measure a 1/2 story from the outside. How do you figure how much square footage on on the second floor if it does not equal the footprint of the first floor....you make your best guess (along with measurements).



The third problem is the software. It's like any other software....junk in = junk out. Some inspectors leave in system generated assumptions (guesses) instead of knowing that the house isn't lined in gold and taking that option out. Junk can also consist of type of construction, roofing and siding materials, number of rooms.


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PostPosted: Tue Jun 30, 2009 10:45 am   Post subject:   

I think the adjustment is required in order to keep the coverage level at par with the rising construction costs. Das has made a very good point. Value of the home doesn't necessarily mean that it would only cost that amount to rebuild.



However, I don't agree with the idea of insurance companies steering the customers to make the adjustments in their policy. But it should remain the responsibility of the HO instead to review the policy requirements time to time.

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PostPosted: Wed Jul 01, 2009 8:35 pm   Post subject:   

Tcope I have to bust you on this one.

I saw in another thread where you admitted to not being up on property coverages and it really shows here.



No insurance company includes value of land in calculation of reconstruction cost because no homeowner policy covers land at all.



You're not entirely wrong about many companies increasing home policies by a percentage that is way out of touch with the reality that construction costs are falling along with property values (albeit at a slower rate).



This is called inflation guard and up until the last 18-24 months it was truely intended to protect the consumer from being burned by the coinsurance rule. But as I said, a lot of companies have kept right on using 4-6% increases each year even though reconstruction costs have actually gone down about 5% in the last 18 months.



I can't speak for Nationwide or State Farm but I don't think it should be a problem to have your coverage reduced to the actual current reconstruction cost. I've been doing a lot of it for my clients.



Of course the company is not going to let you insure your house for market value without changing to an impared risk type policy.

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PostPosted: Wed Jul 01, 2009 9:35 pm   Post subject:   

[quote]Sure they do... just call you agent to discuss how much 1st party coverage you need on your home and see if the purchase price of the home does not come up. Or see if they can provide a value based on the specs of the house. You _will_ see that the value given would reflect the price of the home plus the land. But that is not the major concern I have.



My main complaint is trying to lower the overall coverage on the home or requesting that the insurance company not automatically increase the limits of the policy w/o my permission. The bottom line is this... should your insurance company increase your policy limits without your consent.... or should the person paying the bill be allowed to buy how much insurance they want? Again, who should be in control of this? I understand the "inflation guard" practice and I think it could be a good thing. I say, simply ask the homeowner if they want it... don't automatically increase someone's policy limits without their consent. In that it's done without knowledge and/or consent, to me means the insurance company is just scamming people for higher premiums. To add to that... call your current carrier and try to get it stopped. Set aside a good portion of the day and be prepared to listen to a lot of BS.



Again, the policy already protects the insurance company against under insuring a home. It's the co-insurance clause that is built into the policy.



My last post, in context, was about coverage... not how limits and premiums are assessed. This thread has little to do with the coverage provided on a HO policy. Rather it's about the premiums charged and policy limits.

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PostPosted: Thu Jul 02, 2009 8:21 pm   Post subject:   

Quote:
Sure they do... just call you agent to discuss how much 1st party coverage you need on your home and see if the purchase price of the home does not come up. Or see if they can provide a value based on the specs of the house. You _will_ see that the value given would reflect the price of the home plus the land.




Again, this is just wrong. Pick up a property policy, land is excluded. No company uses land value to establish coverage A.



Quote:
My main complaint is trying to lower the overall coverage on the home or requesting that the insurance company not automatically increase the limits of the policy w/o my permission.




Quote:
In that it's done without knowledge and/or consent, to me means the insurance company is just scamming people for higher premiums.




Without your permission? Without your knowledge or consent? Didn't you sign an application? Didn't you get a copy of the policy to read, or have your attorney read? How can you claim to have not consented to or known about any policy provision. You don't have to like it but you knew, you consented.



Quote:
The bottom line is this... should your insurance company increase your policy limits without your consent.... or should the person paying the bill be allowed to buy how much insurance they want? Again, who should be in control of this?




The consumer is totally in control. While most companies do require 80% to 100% of replacement cost on their preferred (form 3 &5) policies, not all have mandatory inflation guard. Furthermore, if you want to just insure your house for market value you can. Almost all insurers offer policies (usually only form 1 &2) that will allow ACV coverage with almost any covA you care to carry. Sure there are some coverage trade offs, but hey, you can't buy a Bently with cloth seats either.



I don't mean to jump all over you on this issue but my concern is that this forum is supposed to help non-insurance professionals better understand insurance and it really undermines that when professionals expouse blatantly wrong information.



I'm sorry if you had a bad experience with your insurance company but instead of making false acusations against the whole industry maybe you need to look for a good agent you can trust and work with them to find a policy that suits your needs and desires. It exists.
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PostPosted: Thu Jul 02, 2009 9:19 pm   Post subject:   

Quote:
Again, this is just wrong. Pick up a property policy, land is excluded. No company uses land value to establish coverage A.
Part A is coverage... this is not what we are talking about (but lane _is_ covered where it is used to repair damage to the dwelling). We are only talking about the policy limits. Nothing about coverage.



I bought my house for $250k. If I obtain a HO policy for it, I can ask for $250k in coverage under part A and the insurance company will issue me a policy with that amount of coverage. I could ask for $300k in coverage under part A and they will give it to me.



From that point on the insurance company applies an "inflation increase" to the limits of the policy. People are not asked if they want it, it's not explained and it takes an act of god to get an insurance company to remove it (even then, it's only done for that one policy period). I don't have an issue with it per say... only that it's done automatically and it's either not possible to opt out, or it's made extremely difficult.

Quote:
Without your permission? Without your knowledge or consent? Didn't you sign an application? Didn't you get a copy of the policy to read, or have your attorney read? How can you claim to have not consented to or known about any policy provision. You don't have to like it but you knew, you consented
Did I get an application? Not that I remember. Possibly, when I was signing that stack of paperwork when I bought my home. But no where in my paperwork (and certainly not my policy) does it state that my limits will automatically be increased. Can anyone tell me that they agreed to this? Rather then ask me if I ever consented to it (I never have)... let's ask everyone if anyone can say that they consented to it and in what way.

Quote:
The consumer is totally in control. While most companies do require 80% to 100% of replacement cost on their preferred (form 3 &5) policies, not all have mandatory inflation guard
Every had a policy with State Farm? I went through an agent, a local manager and some regional manager. Each time they reacted like I was asking to by their first born child or I was on crack (perhaps both). In the end they told me I could write a letter, mail it in and it would be considered but even if they did remove it, I'd have to renew my request each policy period. If I have to renew my objection each policy period then likewise they should obtain my consent each policy period according to what you state. I've never had a carrier have me fill out an application each policy period.

Quote:
I don't mean to jump all over you on this issue but my concern is that this forum is supposed to help non-insurance professionals better understand insurance and it really undermines that when professionals expouse blatantly wrong information.
Who's posting wrong information? I say we go get them.... Laughing

Quote:
I'm sorry if you had a bad experience with your insurance company but instead of making false acusations against the whole industry maybe you need to look for a good agent you can trust and work with them to find a policy that suits your needs and desires. It exists
Let's put it to the test... call your agent and ask them if you can remove this automatic increase from your policy. Just see what the agent tells you. While you are at it... ask them where is states in your application that this increase will take place. Let me know what they tell you.
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PostPosted: Fri Jul 03, 2009 12:04 am   Post subject:   

Quote:
Part A is coverage... this is not what we are talking about (but lane _is_ covered where it is used to repair damage to the dwelling). We are only talking about the policy limits. Nothing about coverage.




You work mostly with auto policies don't you? In the home policy coverage A (not part A) is the limit of coverage on the house itself. Cov B is is other structures on the residence premises and C is personal property. If you have your house insured for $250K then $250K is your coverage A limit.



Quote:
People are not asked if they want it, it's not explained and it takes an act of god to get an insurance company to remove it (even then, it's only done for that one policy period).




It's probably not often part of the sales conversation. Maybe it should be. I must stress again though that inflation guard was originally introduced when costs were inflating at a rapid rate and before it many consumers who believed they had "guaranteed" replacement coverage got very unpleasant co-insurance surprises when they had serious losses. While you probably can't get every company to just drop inflation guard entirely (but some will if you ask), it shouldn't be hard to call your agent and ask them to run a current RCE and adjust your coverage limit acccordingly. If it is find a better company to deal with. SF can't be the only company writing homeowner insurance in UT.



The wrong information I was referring to was land value being taken into account when calculating reconstruction cost. If State Farm does this then they are worse than I thought. I can't believe it though since Marshall Swift/Boechks is the only residential cost estimator available anymore.



Funny thing about all of this is that up until the real estate bubble burst and the economy started sliding into the toilet I used to spend a lot of time explaining to clients why we were insuring their house for LESS than they paid for it. (because we weren't insuring the land)

Now I spend an equal amount of time explaining that even if they bought the house for $99,000 it's going to take $225,000 to rebuild it if it burns down.



Again I hope you shop around around and find an agent that does a better job of explaining the options available to you. It would help to go with an independent agent who can access more than just one company. Since SF clearly requires inflation guard your state farm agent can't find you a policy that doesn't.
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PostPosted: Fri Jul 03, 2009 1:12 am   Post subject:   

Quote:
The wrong information I was referring to was land value being taken into account when calculating reconstruction cost. If State Farm does this then they are worse than I thought. I can't believe it though since Marshall Swift/Boechks is the only residential cost estimator available anymore.





I understand where tcope is coming from...and yes I did handle property claims and also complete valuations on dwellings and commerical buildings. Let me say that agents use land when writing a policy.. or at least indirectly. Many agents are lazy or busy...okay most of them that I have dealt with are lazy. I see time and again agents using the purchase price of a home for the policy limits. My agent did it to me and actually under valuated my home by 30K. It took numerous calls and my own valuations on the house to show that I was under insured.



So Fishman you are right land should not be considered and tcope is right it many times is considered. Everybody is correct...so its a win win for all. Very Happy


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PostPosted: Fri Jul 03, 2009 7:34 am   Post subject:   

My question is....when the house prices are falling rapidly do we really need the inflation adjustment? Rather we can have a deflation adjustment that will lower the coverage level everytime the price of the house goes down. Very Happy


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PostPosted: Fri Jul 03, 2009 2:27 pm   Post subject:   

I'm with you, anonymous. We don't need inflation guard right now and I wish companies would discontinue it until costs start going up again.

Until then, as a non-lazy agent, I'm working overtime to make sure my client's houses are not overinsured.

If your agent is not doing this. Make them do it.

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PostPosted: Fri Jul 03, 2009 8:43 pm   Post subject:   

Quote:
My question is....when the house prices are falling rapidly do we really need the inflation adjustment? Rather we can have a deflation adjustment that will lower the coverage level everytime the price of the house goes down.




That's the whole point. The coverage for your dwelling should be based on the cost to rebuild your home and not the market price or what you could sell it for. So any inflation adjustment would be for higher re-construction costs (lumber, shingles, drywall). I finished my basement around 2004 and just looked at current 1/2" drywall costs and found that they doubled in 5 years.


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