Is Your Home Underinsured?

Homeowners faced with the economic downturn, rising taxes and stagnant wages look for ways to save money. Many have discovered that by lowering the replacement value on your homeowner’s insurance, the monthly bill goes down. But before you check the win column on that savings, you may want to determine whether or not you just became underinsured. At the DePaulo Agency serving Scotia, NY, we believe it’s important that you are properly insured.

Market Value vs Replacement Cost

Unless your home is fairly new, the difference between what it’s worth and what it would cost to rebuild may be worlds apart. The national average for home-building costs hovers around $125 per square foot. The average home built in 2015 was about 2,600 square feet.

That means average replacement costs for an average new home run $325,000.

Now the average home built during the early 1980s is about 1,700 square feet. But if you incur a total loss due to fire or natural disaster, you will not be rebuilding at 1980s prices. New construction would run you about $212,000. That number also doesn’t account for razing and clearing your lot. While this highlights the danger of being underinsured on average, older homes may cost more to rebuild.

The Older Home Conundrum

As homes age, there can be a cost-beneficial market depreciation for buyers and ultimately homeowners. That real brick fireplace, ornate woodworking, and thick hardwood floors bring an old-world luster that’s difficult to find in new homes. Ironically, that allure often comes at a lower cost than new construction.

But if you suffer a loss, rebuilding will most certainly be based on today’s construction costs. Those hardwood floors, brick fireplace, and ornate woodwork, are often considered high-end items. Recapturing the beauty of your older home will come at a premium. Before saving a few bucks by insuring your home at today’s average replacement costs, get an estimate that details what it would take to restore your home to the way you want it. The two numbers are likely to be significantly different.

The drive to save money on your homeowner’s insurance can end up costing you dearly if you suffer loss. At the DePaulo Agency serving Scotia, NY, we urge people to have policies that realistically cover replacement costs. After all, security is the very basis of any homeowner’s insurance.