We get this questions every day, often more than once a day. Everyone wants to know why their coverage is so much higher than the value of their home.
Quick answer- The coverage on your Dwelling has nothing to do with the value of your home on the open market. If your coverage A and the value of your home are similar than you probably need to increase your coverage A.
Different factors go into determining how much you can get for your house if you were to sell it as compared to how much insurance coverage you would need to rebuild your house.
What is Coverage A-Dwelling?
Coverage A is the amount of coverage on your homeowners policy for your Dwelling. In theory, your Coverage A should be the amount of money needed to replace your home if their were to be a total loss.
What are some of the key factors that go into determining the amount of coverage for your dwelling?
Amount of Square Footage of your house
Is there a garage? Attached or Built in?
Are there any decks, screened porches, etc.?
How many bathrooms?
Are the bathrooms and kitchens custom built (granite or marble counter tops)?
There are many more factors that go into determining the amount of coverage
Your agent will plug the information about your house into a Replacement Cost estimator program that will calculate the amount of coverage needed.
For homes built prior to 1930 you will find that your coverage A is going to be higher. Why?
Plaster walls and ceilings. Plaster is much more expensive than drywall.
More expensive building materials. Less expensive building materials started to be widely used after 1930
Frame Houses. Most houses constructed prior to 1930 have a mason foundation whereas modern day homes are usually always frame construction.
What do you do if you think your Coverage A is too high?
Ask your agent for a coverage analysis. It is possible the coverage is too high. Each year all of the insurance companies will automatically increase the amount of coverage on the dwelling as a way to keep up with rising costs and inflation. If you or your agent do not review the coverage amount than it may be higher than it needs to be.
Some companies offer an endorsement that allows homeowners with older homes (pre-1930 construction) to reduce the amount of coverage based on a Functional Replacement Cost. Basically, this is the cost to replace the home with modern day building materials. Because NOBODY is using plaster anymore. If you have an older home with a high coverage on your dwelling, ask your agent if this is a possibility.
My name is Keith Laskey. My goal is to educate the everyday consumer and to help them make intelligent decisions with their insurance policies. Please contact me at my office, 610-948-4830 or Email Me for any insurance related questions or concerns. You can also visit the Ron Black Agency website or like us on Facebook! Thank you for stopping by, have a great day!