Homeowners Insurance - how much?

[prosperity]

I've lived here at my little property for 20 years now. I've also had the same homeowners/auto insurance the whole time. My question comes now when my policy renews every year, there is an automatic adjustment to the value of the insurance which I think is getting out of hand. This adjustment is for the house itself and outbuildings.

I'm in a very remote area where the real estate values are just plain flat - no appreciation at all over the years. I paid $55K for this place 20 years ago - 2 bedroom house with a single story barn with beautiful river frontage on 6 acres. In my mind, if I were to sell it today, I would be lucky to get $75K for it.

I originally purchased my insurance for $80K on the house which included $8K for outbuildings. After all these years of incremental adjustments, the insurance is now $154.4K with outbuildings $15.4K. My policy comes due again in August so in the meantime I am trying to make an informed decision as to how much insurance I really need.

I know there is a difference between sale value and the cost to actually rebuild the house. I guess what I need is to somehow find out how much it would cost to rebuild my house in equal size.

Is there a way to find out how much it would cost to totally rebuild after a catastrophe? I need to figure that out, then decide how much insurance I really need, and then also to figure out if I would rebuild or walk away afterward.

 

[TCJatko]

I'd go with a "replacement cost" policy. My homeowners policy is such and runs about $ 800 annually (total insured value around $ 240 K). Skimping on insurance is a false economy, IMHO.

 

[EarPlug]

The first thing to do is to find a good Broker to shop your insurance. Staying with the same company for 20 years is not necessarily a good thing. There is something called "rate creep". Once a company has you insured they figure you won't notice and/or just accept annual rate increases.

Your assumption that the insured value may not cover replacement value is correct. With all of the losses to wildfires here in Colorado the last couple of years, many people found out that they were only covered for much less than the actual replacement value.

 

[Gary Fowler]

One thing most folks don't consider when estimating replacement costs is the demo of and haul off of what is left after a fire. That cost can be substantial especially if you have to demo a concrete slab. I personally wouldn't build back on the same slab after a fire but I know some do.

That is good advice on shopping for insurance rates, even if you don't anticipate switching, it is good to shop rates about every 5 years to see if you are getting ripped off on your pricing.

Replacement costs vary greatly by area and that is the best way to estimate your cost. There are online sites that give average cost to build by square foot by area. Use the highest number for your area and you will be close. Although $154K for a 2 bedroom may seem a bit high, it may be in line with average building cost for your area. I doubt that your insurance agent will be inflating the insurance policy just to get more money. They have standards that they cant go above for calculating replacement cost. They cant insure a one room cabin for $200K just to get a premium bonus for instance.

 

[Travelover]

+1 on shopping your insurance every few years. I try to get home, auto and umbrella insurance all from the same source. I also have a high deductible - $2500 which keeps the rate down.

 

[Bird]

I'd go with a "replacement cost" policy. My homeowners policy is such and runs about $ 800 annually (total insured value around $ 240 K). Skimping on insurance is a false economy, IMHO.

All good advice in this thread, in my opinion. Of course, I've heard many times that homeowners insurance is high in Texas, but mine is about 50% higher than yours and for less insured value.

 

[square1]

Not having a mortgage means I am able to dictate to my insurance company the amount of coverage I want and has lowered my annual premiums. I carry enough to bulldoze the ruins and buy a comparable home elsewhere outright. It would be foolish to rebuild (at today's cost) my home in the same location as it will never be worth what it cost to construct. If my home were on my property with the woods and creek, I'd insure for replacement value.

 

[jinman]

My Hartford homeowner's policy just went to $2700 + per year. I changed to Germania and now pay $1800 for identical coverage. Hartford just priced themselves out of my business. Oh yes, With Germania, my tractor is included in that $1800 price.

 

[prosperity]

Thanks for all the great replies so far. I do check other company rates from time to time, but not one is able to come close to what I have for auto and homeowners. To me, it's downright cheap. My homeowners insurance as I said is for $154K and 15K for outbuildings, and $100K liability. Also have replacement cost for personal property of $115K. My annual rate is $638.

Not having a mortgage means I am able to dictate to my insurance company the amount of coverage I want and has lowered my annual premiums. I carry enough to bulldoze the ruins and buy a comparable home elsewhere outright. It would be foolish to rebuild (at today's cost) my home in the same location as it will never be worth what it cost to construct. If my home were on my property with the woods and creek, I'd insure for replacement value.

Thank you for putting this here as that is exactly how I think. It would be ridiculous to spend $150K to build a new house on this property for it only to be worth $100k at most when done. That is why I mentioned walking away from a total catastrophe. Just collect the check and move. Also since my wife and I are both somewhat handicapped, I don't know how long we will be able to keep up with the property maintenance anyway.

Gary Fowler - I agree with having to look at the demolition and haul away. That can be quite an expense living in a remote area. Anything I have delivered here like stone or gravel I pay quite a premium because of the distance and fuel cost. I do have a full unfinished basement under the entire house, but I'm sure that would have to be replaced if building new. If I am looking at the walk away scenario, I will have to include that demolition cost in so the land itself is salable.

I think a lot of it comes down to what square1 said and I should look at insuring for the amount I would think needed to possibly move to a smaller property with less maintenance if the time came.

 

[prosperity]

I measured out our house and barn today. Also found a decent building cost calculator that asked for a lot of details along with the state and zip code for the building site.

Building-Cost.net -- free residential building cost calculator

My house is 1325 sq' and barn is 100 sq'. After running the calculator it came to a total of $149K using average construction type and materials. To me this seems pretty accurate just for estimation purposes.

Also had a talk with my wife about all this - and we really do love living where we are. We are remote - have 6 acres with almost 1/4 mile of river frontage and have no neighbors - just how we like it. And I think the property taxes are quite reasonable at $740 a year. I think in a catastrophic event we would actually rebuild to stay here.

So my insurance seems to be pretty much on par with what I have/need right now. I can put this to rest now and move on.

Thanks everyone for your input - really helped me think this through properly.