Determining Your Home Insurance Needs

The cost to rebuild your home is its replacement value. This can be very different from the estimated market value or actual purchase price. In most cases, it costs more to rebuild the home you own than to buy one from the stock of homes on the market. The first step in providing the right protection is helping you determine the amount of insurance you need to protect your home.

Why Reconstruction Usually Costs More Than New Construction

Economy of Scale

When a contractor has many homes under construction at once, materials can be purchased in large quantities for delivery as needed – everything from framing lumber to plumbing fixtures. If you buy a large number of bathtubs, for example, suppliers will compete for your business and offer price discounts. When you buy just one bathtub, and it must be a match for one that’s been destroyed, it will nearly always cost much more than if it had been part of a larger purchase. This holds true for almost everything that goes into a home and this factor alone can push the cost of rebuilding thousands of dollars higher than the cost for comparable new construction.

“Top-Down” vs. “Bottom-Up”

New construction begins at the foundation and builds upward. Repairing a house that isn’t totally destroyed often means removing the roof and rebuilding from the top down, a far more time consuming and labor-intensive procedure.

Demolition and Debris Removal

New home construction normally begins on open ground, perhaps with some brush removal and grading and other minor site preparation. Rebuilding begins with a partially or totally destroyed structure occupying the building site. Parts of the structure may still be standing but unusable, requiring demolition and removal. The site may have to be extensively cleaned – after an intense fire, for example, the soil may be contaminated. The foundation may have been damaged beyond repair. A lot of work is usually required before the first cement can be poured or the first nail hammered in.

Use of Labor

When a new homebuilder has several houses under construction, even if they aren’t all in the same area, work can be scheduled for the most efficient use of carpenters, plumbers, electricians, and other workers. If one house isn’t ready for wiring, the electrician can probably work on another. When only one home is being built, the same kind of efficient scheduling is rarely possible. Labor normally accounts for the largest share of home-building costs.

Access to the Work site

When new houses are under construction, there is usually no landscaping, allowing easy access to the site. Materials can be driven directly up to any side of each structure as needed. When a house is being rebuilt among existing homes, there are trees, shrubs, lawns, flowerbeds, fences and other obstructions limiting access. Materials often have to be off-loaded further away and hand carried to where they’re needed. This factor is compounded if the building site is on sloping ground. The impact on labor costs can be significant.

Special Features & Unusual Materials

Older homes and homes that have been extensively remodeled often have customized features or include materials not commonly found in homes being built today. These features and materials can be very expensive, if not impossible, to duplicate. Examples include slate or tile roofs, lath & plaster walls, covered ceilings, wainscoting, solid (instead of hollow core) doors, custom ironwork, ornamented fireplaces, exposed beam ceilings, stained glass or other leaded windows, curved staircases, slate or tile floors, and other items.

Building Code Changes

Most older homes, and many newer homes, were built during times when building codes were less strict than they are today. If you are rebuilding or restoring your home, you may need to meet the newer and more demanding building codes. Even undamaged parts of the structure may have to be rewired or re-plumbed to meet current codes. Building codes may also require you to replace windows with safety glass or replace roofs with fire-retardant materials. Building code changes can add thousands of dollars to the cost of restoring a damaged home.

Construction Costs Rise After Natural Disasters

In the wake of a disaster affecting a wide area – hurricanes, wildfires, etc. – the costs of building materials and contractor fees nearly always rise sharply in response to the sudden surge in demand. Even without deliberate profiteering this would normally be true because when local supplies are quickly exhausted, materials have to be brought in on an emergency basis, often from mills or factories at great distance. This may require more expensive modes of transportation and a lot of overtime pay. Whenever many homes have to be repaired or rebuilt at the same time, the cost for each will be higher than normal, sometimes much higher.


It’s rare that all sectors of the economy respond to inflationary pressures at the same rate. Construction materials, especially wood products, frequently increase in cost faster than other commodities and significantly faster than the general rate of inflation.

Undamaged Parts Of The Home and the Contents Must Be Protected

Once the fire is out or the windstorm has abated, all parts of the property not destroyed must be protected from further damage or looting. This can involve covering a damaged roof, missing window glass, and holes in the walls with plastic sheeting, for example, and, as soon as possible, surviving personal property items must be removed and placed in temporary storage for safekeeping.

Be Sure You Have Enough Insurance
Here are some steps you can take to reduce the danger of being seriously underinsured:

  • Read your policy. Certain property, such as jewelry, and certain perils, such as earthquake or flood, are better insured separately. Knowing what is covered and for how much will help you insure properly. If there is anything in your policy you don’t understand, contact your agent and ask for an explanation
  • If you have questions or concerns about the limits in your policy, ask your American Mutual agent to show you how those amounts were calculated. This will also give you an opportunity to make your agent aware of any overlooked information
  • At each annual renewal of your policy, you receive a new Policy Declarations page showing limits of coverage and optional coverages. Review this information
  • If you do any significant remodeling or add a family room, extra bedroom or bathroom, etc., tell your agent about these changes so your coverage limits can be adjusted to cover the improvement
  • Consider carefully whether your policy provides all the protection you need. Does it provide coverage for extra costs resulting from building code changes? Does it automatically increase coverage limits annually to keep pace with inflation? Does it provide additional funds if the cost of rebuilding your home exceeds the policy limits?
  • Find out whether your insurance company will stand behind repairs they agree on and pay for after an insured loss. American Mutual puts this guarantee in writing
  • Does your policy include replacement cost coverage for contents (clothing, furniture, appliances, and other personal property inside your home)? If not, you can add it by endorsement. The cost is small, the protection valuable. Without it, contents coverage is depreciated by the age and wear and tear of the items lost
  • If you have an art collection, antique furniture, jewelry, or other valuable possessions, talk to your agent about supplemental coverages, such as fine arts or scheduled property endorsements, to adequately protect your investment in these items. The cost is modest for the extra protection
  • Consider whether you should have more coverage for personal property (contents) than your policy provides. Personal property coverage is usually 70% of the coverage limit for the structure. Your limit may be lower than 70%. Supplemental protection is available for a small additional premium
  • Prepare an inventory of personal property items, update it periodically, and keep it in a safe place outside your home, such as a safe deposit box at your bank. It will save you hours of time trying to list everything you lost if the time comes when you have to make a claim. It will also help ensure you don’t forget some items. Your agent can advise you on ways to simplify the job of preparing a personal property inventory such as videotaping each room, with descriptive information on the sound track
  • Besides making sure you have enough protection to cover possible damage to your own home and contents, you should also evaluate your exposure to liability risks. These result from damage to the property of another, or injury to a person, not a member of your household, for which you can be responsible. In recent years it’s become common for homeowners to be sued for injuries or damages to others, even when there is no evidence of negligence by the homeowner. The reality today is if you have any appreciable assets, you are exposed to the risk of being sued. Even if you ultimately prevail in court, your legal fees and the months or years of worry and uncertainty can be a terrible burden on you and your family
  • If you have greater than average assets, you should probably talk to your agent about a. $1 million of coverage will usually cost less than $200 per year (costs vary from one locale to another) and even higher limits are available