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R&R Insurance Blog

Replacement Cost vs. Reconstruction Cost

Posted by Susan Klujeske

iStock_000045235530_Large.jpgWe have all found ourselves in the position of reviewing an MSB Building Valuation and comparing it to a building's current valuation on the policy. While the policy reflects the building valuation as replacement cost, the insurance policy actually responds providing a reconstruction cost. What’s the difference you ask?

Replacement cost is defined as the cost to construct or replace an entire building with equal quality and construction. A replacement cost does not include site improvements, demolition, debris removal, fees, premium material costs and other costs associated with the construction process. Replacement cost also assumes that current building material, design or layout will be available and used.

Reconstruction cost is defined as the cost to replicate the building, at current construction prices, using the like kind and quality materials, construction standards, design, layout and quality. The MSB reconstruction cost includes additional expenses related to repair and restoration contractors’ fees, the construction process itself, the location of the property, demolition costs and debris removal. These factors create a valuation that is higher than a new construction.

A cost provided by a builder for new construction will not include items provided for and included as property items within the ISO Commercial Property form (CP0010). The MSB Rating system is programmed with these additional costs.

If you have questions about your Commercial Insurance Policy, contact a knowledgebroker at R&R.

Topics: Building Valuation, Replacement Cost, reconstruction values

Total Home Loss: 67% of Homeowners are Underinsured

Posted by the knowledge brokers

home_constructionWhat would happen if your home was completely destroyed by fire or tornado? Would you be able to replace it? When it comes to insuring your home, it doesn't really matter how much it is worth, but rather it's important to determine how much it will cost to replace the dwelling.

Reconstruction values may be drastically different from the market value, especially in today's housing market. It's important to have your agent run a replacement cost estimator of your home. You can also run your own replacement cost estimators on sites like AccuCoverage. Enter the details about your home carefully, even if it takes some extra time to dig out the paperwork. Accurate details will provide a more accurate replacement cost on your home. Then, if a catastrophic loss occurs, you can be sure you have the right coverage to replace your home.

According to the executive director of United Policyholders, Amy Bach, predicting the replacement cost requires more than making a ballpark guess. "Computers don't build houses," Bach says, "Contractors do, but you've got to start somewhere." Bach went on to say that more than 67% of homeowner's are underinsured.

How can homeowners be under-insured on their home replacement costs?

For example, if you have a dwelling with extended replacement cost on a home insured for $200,000, the most the insurance policy will pay out will be $250,000 if the home is a total loss. The extra coverage provides a safeguard in case the home isn't insured for enough - but it still may not be enough! The best way to make sure you are fully insured to replacement value, is insuring your home with guaranteed replacement cost. Many of our carriers offer guaranteed replacement cost which pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit.

Wisconsin residents, contact knowledgebroker Dan Wolfgram for more information or a quick quote on your home & auto insurance!

Topics: Personal Insurance, guaranteed replacement cost, total home loss, reconstruction values, home destroyed, home replacement, Replacement Cost, dwelling replacement, replace the dwelling