Insuring Your Home for Its Full Value

Insuring Your Home for Its Full Value

My father is retired. He was an accountant all his life and so he knows numbers really well. But not insurance. This gives rise to the following conversation every year when he renews his home insurance.

My dad (handing me his renewal): “So, do you think the price is good?”

Me: “It sounds right, but I bet the house is worth more than $150,000. If you had to rebuild, I think it’d be closer to $300,000.”

My dad: “If you give me $300,000, the house is yours straight away! Ha, ha, ha, ha!”

Like many homeowners, he thinks that the amount that should appear on his insurance policy is the same as the market value of the building. Others yet believe that they should insure the actual value of their home. Both of these beliefs are false.

Most home insurance policies contain a replacement value clause on the building. It is therefore very important to insure your home at its fair value so that you don’t find yourself in serious financial trouble in the event of a claim.

But how can you be sure you’re insured at fair value?

The best is a professional evaluation by a certified appraiser. However, your insurance broker can help you with an excellent software developed by an appraisal firm, called Insurable Value Calculation or IVC.

When you request a quote or your next insurance renewal, your broker will take the time to do an IVC with you. They will then be able to calculate the cost of rebuilding your home.

Some people dispute the IVC’s appraisal. Since the amount is sometimes higher than the current insured value, they have the impression that the broker is just trying to up their insurance premium. This is not the case.

Inclusions in the cost of reconstruction

The IVC includes not just only the cost of new materials and labour to rebuild your home, but also the cost of debris removal after your loss.

You also have to realize that the general conditions during reconstruction may not be ideal. Weather can be unpredictable. Certain materials can be difficult to obtain at time of construction. Maybe you were the first house in a new development, but now there are neighbours whose landscaped yards will have to be avoided, etc.

And since the work is urgent—you want to get back home quickly—the insurer doesn’t have time to shop around for the cheapest contractor. Instead, the insurer will choose the best one available at the time of the loss.

Now we can understand why you really should take just a few minutes with your broker to complete the IVC properly. Yes, your next phone conversation will be a little longer, but it could save you a big headache if you need to make a claim.

And if you are still unsure of the fair value of your home, call me. I’ll check with my dad.


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