Why Does My Homeowner Policy Have Such a High Dwelling Limit? My House Isn't Worth That Much!


The "value" of your home is different for real estate, taxes, and insurance.  Let's look at the differences  between a real estate appraisal, the purchase price, the property tax appraised value, and the reconstruction cost estimate.  

Let's start with the property tax appraised value. With older homes, the amount taxed can be very different than the real estate appraisal. A real estate appraisal takes into consideration the age and condition of the home, plus upgrades and additions. The purchase price is usually based on a combination of the real estate appraisal and the market value. Market value is the amount similar homes are selling for (within a certain distance of the home's location). The reconstruction cost estimate is the amount insurance companies use to calculate the cost of rebuilding your home if it is severely damaged or is a total loss after a covered event such as tornado or fire.

Although each carrier uses their own version of the RCE (Replacement Cost Estimator) software, there are a few key characteristics that factor in to the estimate, including:  Year built, number of stories, style of home, construction type, exterior wall type, foundation type, total living square footage, roof type, roof design, number of bathrooms, and heat type. Also factored in is the quality of materials, garage type, fire places, skylights, and other special features.  Last, but not least, if there are solar panels or a swimming pool, it can affect the eligibility of the home for coverage with certain carriers. 

When you request a home quote, make sure you give your insurance agent detailed information about any upgrades to the roof, heating system, electrical, or plumbing.  For example, if the home was built in 1980, but has a new roof and new heating system, it might qualify for a lower rate than a similar home built the same year.

If you're looking to buy your first home, keep in mind that homes outside of city limits usually cost more to insurance than homes closer to the main fire stations.  Call your insurance agent and get a ballpark for home insurance before you commit to the purchase.



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