So how much home insurance coverage do I actually need, that’s a question we get from first-time home buyers and homeowners all the time and the answer is going to depend on several different factors. The easiest place to start for quick estimates is to use a price-per-square-foot calculation.
Home Insurance Value Calculation
Here in New York the average price per square foot to rebuild a home starts around $250.00 and for luxury-built homes, it’s very common to see that price-per-square-foot number go much higher.
- For example, if your home is 2,000 square feet you would take that and multiply it by $250.00 to get a rough estimate of $500,000 to rebuild your home. Again that’s the simple quick estimate way to do it.
To get a more precise estimate we always recommend running the homeowner through what’s called a Replacement Cost Estimator. This is an Agency tool where we can plug in all the information about your home and calculate the cost to rebuild your home in the event of a total loss.
This is usually where an appraisal can come in handy since that document will contain all the main details and information about your property.
Replacement Cost vs Market Value
Now let’s discuss the difference between the real estate market value of your home and the actual cost to rebuild the structure of your home. Frequently you’ll hear mortgage companies say “the loan amount is for $500,000 so you need to provide us with proof of insurance for $500,000”.
- The market value of the home and the actual cost to rebuild the structure of your property are generally always two different numbers.
Let me explain, the market value of your home includes several different real estate market factors including the land your property is on, the location of your home, supply and demand, and just general real estate market trends at that specific time.
The cost to rebuild the structure of your home doesn’t include all those market value factors since the insurance company is only covering the structure.
It’s actually common for the property to be insured for less than what the required loan amount is (or vice versa). So to get around this mortgage loan requirement all we usually need to do is provide the lender with the replacement cost estimator report that we spoke about prior since that document has all the details on what it would cost to rebuild your home.
I know there’s a lot of information here but I wanted to finish off with this, many insurance companies today are turning away homeowners that they deem to be too risky and some are even leaving gaps and exclusions in policies that can leave you exposed. We take a more hands-on approach to learn about you and your needs so we can write a policy that ensures maximum protection for you.
If you are interested in learning more about this or if you’re interested in purchasing a new home insurance policy, then I would encourage you to reach out to us today via the form below and take care.