Reconstruction Cost versus Real Estate Value; these two methods of property valuation often create confusion for customers. In reality, they are very different numbers and they need to be considered separately during the process of covering your Home. A realtor will do a valuation, or you may have just closed on your new home and have a value that is indicative of the realty market for that area. That number is driven by such factors as comparable listings in the area, competition in the marketplace, current mortgage rates, services to the property, property taxes, and class of area; all of which have little bearing on the insurance value that you should place on the building. The Reconstruction Cost of your building is the important number for the insurance company, and that value is affected by materials cost, labour cost, class of construction such as a luxury custom home or a subdivision standard home, and availability of contractors. Realty value includes cost of the land, and of course the reconstruction cost does not include that value as the land is already there. When you talk to your Insurance Broker about what value you should put on your home, they should walk you through a process that will help you better determine what the reconstruction value will be. We use industry tools that will better enable us to determine the appropriate value based on a series of questions regarding the features of your home including general construction type, location relative fire protection, quality of interior finishing, decks, pools and a whole host of other questions. From these questions, a fairly accurate reconstruction amount will be established and coverage in that amount will be what you should consider as the insurance value. Because there is a margin of error in this process, and because clients or we Brokers are neither builders nor construction professionals, we place an endorsement on your coverage called “Guaranteed Replacement Cost” (GRC) that will make sure that we will always have sufficient coverage in place to cover the total reconstruction cost. A condition of GRC is that we are required to go through the process above, and that we insure the Building to 100% of it’s value as determined. Call your broker if you’ve not been through the process lately and be sure your have the right coverage to protect your largest asset.
Tim Crawford, C.I.P.
Elliot & Crawford Insurance Ltd.