Homeowners insurance and current lumber prices

[rfuerst911sc]

I had a thought yesterday , they are random at best 😊. With lumber prices being around 40 % higher than a year ago should you adjust your homeowners insurance accordingly ? Let's say for this conversation you have your home insured for 200K . If it burned to the ground would 200K be enough to rebuild it ? Curious to see what you guys have to say .

[Arizona_928]

Interesting post. Speaking with my parents about their house and upping the insurance on it. When the insurance pay out is half of what zillow says it is worth...

[drcoastline]

Most homeowners insurance policies have what is known as a coinsurance clause. With the clause being set at 80%. What this means is at the time of a loss the structure needs to be insured for at least 80% of it's Replacement cost So if we have a building with a replacement cost (the cost to rebuild)$100,000.000 the building needs to be insured for at least $80,000.00 to avoid being considered under insured and penalized.

If at the time of the loss the $100,000.00 structure is insured for $50,000.00 only 50% of the structure is insured, so the carrier will pay $50,000.00 less the deductible.

If your agent insures you for 80% coins at the effective date, you have a problem. Insure for 100% (the agent can do an estimator) every two or three years have the estimator redone.

If you keep up with the estimator the current prices shouldn't have an negative effect as you will be within the 20% fluctuation that is permitted.

[drcoastline]

Originally Posted by Arizona_928

Interesting post. Speaking with my parents about their house and upping the insurance on it. When the insurance pay out is half of what zillow says it is worth...

Market value - property tax value - insurance value are not one in the same.

Insurance covers structures not land.

[LWJ]

Answer. Most likely.

Certainly should look at replacement cost.

[Baz]

I'm self-insured.

[drcoastline]

I took this piece out of pwd72s thread on the housing market. https://forums.pelicanparts.com/off-topic-discussions/1093598-interesting-piece-housing.html it states;


"soaring lumber prices over the past 12 months have caused the price of an average new single-family home to rise by $35,872, according to the National Association of Home Builders."

This piece indicates the average construction cost of a home is $248,000.00 as of 2017.

https://homeguide.com/costs/cost-to-build-a-house

Replacement cost/insurance value $248,000.00, add $36,000.00 increased cost due to lumber new Replacement cost is $284,000.00.

$284,000.00 x 80% = $227,200.00

Keep in mind this example and the article account for increased lumber costs only, other martials are also on the rise as is labor. In my market the $155.00 per square foot cost would be builders grade. Our average is closer to $225.00 per square foot.

Have your agent run a Replacement Cost estimator.

[MBAtarga]

I know cost of material is much higher than ever, but the land your home sits is also part of that home purchase/mortgage/value. Don't error in over-insuring for that full amount - when the lot/land could easily account for 10-20% or more of the "home" value.

[A930Rocket]

Originally Posted by MBAtarga

I know cost of material is much higher than ever, but the land your home sits is also part of that home purchase/mortgage/value. Don't error in over-insuring for that full amount - when the lot/land could easily account for 10-20% or more of the "home" value.

Does this apply to townhomes?

[drcoastline]

Again, don't confuse Replacement Cost of the structure with market value of the property. Insurance only cares about what it would cost to rebuild the structure or purchase new personal property. The land is not insured and what the Real Estate market is doing up or down doesn't matter. In most cases the value of the land is what drives the market value.