The SFHomeBlog points out a relevant RealEstateJournal article concerning “the downside of the housing boom: Many homeowners are now significantly underinsured.”
…people who haven’t updated their insurance policies in a few years may now be underestimating what it would cost to rebuild their homes, particularly in high-priced markets.
One of the biggest shifts by insurers in recent years has been the virtual disappearance of “guaranteed replacement cost” coverage, which promised to rebuild a home exactly the way it was, no matter the cost. Now, most standard policies provide only “extended replacement cost,” which offers up to 20% or so more than the face value of the policy if extraordinary events push up rebuilding costs.
Insurance experts say many homeowners haven’t grasped this shift, and may be woefully underinsured as a result.
For insurance purposes, the value of a house is based mostly on the rebuilding costs in a particular area, not on its market value. The policy isn’t meant to include the value of the land underneath, which is why some homes, especially in desirable neighborhoods where land is pricey, need less insurance than the amount they would fetch in a resale.
And no, we’re not suddenly selling insurance.
∙ Surge in Home Prices Leaves Homeowners Underinsured [RealEstateJournal] [SFHomeBlog]