Insurance to Value

Insurance to Value is a method insurers use to figure out what amount they need to pay towards a loss covered under the homeowner’s policy. The amount approximates the actual replacement cost of an insured property.

Understanding your insurance to value figure allows you to determine whether your home has a satisfactory level of coverage. 

Generally, insureds must have coverage amounting to at least 80% as much as the value of their home. Given that coverage is less than the expected 80% of that value, the amount paid on claims will decrease from the usual standard.

How Do You Determine ‘Value’?

Figuring out how to determine the value of your property is essential when ensuring you purchase enough insurance.

There are a few ways you can assign value to a property:

  1. Replacement Value: A calculation reveals the cost of repairing, replacing, or rebuilding your building. Usually includes the cost of materials, architect services, removal of debris, work permits, and labor charges.
  2. Market Value: An evaluation of the price a building could be sold for on the real estate market. Lot size, buildings’ conditions, and neighborhood location attraction are some of the things considered in determining market value.
  3. Assessed Value: The assessed value refers to a property’s Value concerning property tax. Determining the Value is usually allocated to the municipality.

How Does the Insurance to Value Process Work?

Typically, the Insurance to Value figure is written as a percentage. The percentage represents the amount of the reconstruction costs that the insurer will pay- if your home needs to be rebuilt after a protected loss.

Mini Example:

· Your home will cost $150,000 to rebuild.

· Your replacement cost coverage is 80% with a 1% deductible.

· This would mean your insurance covers $120,000 of the cost to rebuild and your deductible is $1200

· If your home is recorded as a loss, the insurer would pay $118,800 (120,000-1200) towards the repairs. The insured would have to pay $31,200 (150,000-118,800) to fund the rebuilding.

Three Tips to Ensure Your Property is Insured Correctly:

Having 100% replacement cost value (RCV) is ideal, so you don’t have to contribute significant amounts of money to restructure your home. The estimated RCV detailed on your policy must be precise to ensure you are not under or over-insuring your property.

These 3 tips will help you to determine if your insurance is correct:

  1.  Hire an appraiser to receive the most accurate appraisal.
  2.  Figure out your home’s square footage and contact local licensed homebuilders to figure out rebuilding cost per square foot and multiply the two together.
  3.  Contact your home insurance company and request a rebuilding cost estimate, or if you are taking out a new policy, request a physical inspection.

If you are a landlord and you need landlord insurance then get a free quote from us in just a few minutes. If you want to learn more about how much landlord insurance costs and get a good overview then we have free resources for you!

Remember: Regularly convene with your insurance company to review your insurance to Value. Make them aware of any home renovations to ensure your insurance cover is correct.

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