Home Replacement Cost
Why Can’t I Have What I want?
Even with no hurricanes this year the Homeowners insurance markets in Florida have tightened yet again. Insureds and consumer groups are yelling fowl and accusing even Citizens Property Insurance Company of making too much money. Have you seen their financial statements?
With the markets getting tight and other losses (other than windstorm) such a “Sinkhole” draining the coffers of the insurance companies the Insureds frustration build, almost, rage.
My personal homeowners coverage “doubled.” I almost threw up when I received the renewal. We are collectively between the proverbial rock and the hard place. Daily our agents are doing our best to explain the reasoning and rationale of the price increases and companies dropping insureds.
The number one question that we get is, “Why can’t I just have enough homeowners to cover my mortgage.” The insureds of the state of Florida are looking for “Burger King ®” insurance and unfortunately it does not exist.
Our agents pride ourselves on doing our best to explain insurance. In 1997 I wrote the book “Demystifying Insurance. The Family Insurance Guide into the new millennium.”
I took on this very issue and so we will revisit it yet again, why can’t I have the insurance I want. First everyone get your policy!
Both commercial property insurance policies and personal lines policies have a coinsurance provision. The Homeowners Policy has a section, usually section 3 under conditions, for those of you who have your policy in hand, called “Loss Settlement”. To copy from the ISO version, Insurance Service Office, the most used form:
Buildings under Coverage A or B at replacement cost without deduction for depreciation, subject to the following: (1) If, at the time of loss, the amount of insurance in this policy on the damaged
building is 80% or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, after application of deductible and without deduction for depreciation, but not more than the least of the following amounts:
(a) The limit of liability under this policy that applies to the building;
(b) The replacement cost of that part of the building damaged for like construction
and use on the same premises; or
(c) The necessary amount to repair or replace the damaged building.
(2) If, at the time of loss, the amount of insurance in this policy on the damaged
building is less than 80% of the full replacement cost of the building
immediately before the loss, we will pay the greater of the following amounts, but
not more than the limit of liability under this policy that applies to the building:
(a) The actual cash value of that part of the building damaged; or
(b)That proportion of the cost to repair or replace, after application of deductible
and without deduction for depreciation, that part of the building damaged, which the total amount of insurance in this policy on the damaged building bears to 80% of the replacement cost
of the building.
Yes, I know your eyes have just glazed over. In this version there are two possible outcomes.
Outcome 1 (using 80%)
You have $100,000 Coverage. The value of the dwelling “AT LOSS” is $120,000. You have a small kitchen fire, the adjuster estimates
$10,000, Actual Cash Value (The cost to repair less depreciation) OR
$21,000, Replacement Cost
The verbiage is saying $120,000 X .8 = $96,000 defines your Threshold. Since you have MORE than $100,000 in force the company will pay the $21,000 (less any deductibles) for your loss.
Outcome 2
You have $60,000 Coverage Just to cover your mortgage. The value of the dwelling “AT LOSS” is $120,000. You have a small kitchen fire, the adjuster estimates
$10,000, Actual Cash Value (The cost to repair less depreciation) OR
$21,000, Replacement Cost
The verbiage is saying $120,000 X .8 = $96,000 defines your Threshold. Since you have LESS than $100,000 in force the company will pay the $10,000 (less any deductibles) for your loss. You are not happy.
The second part of the verbiage is “Coinsurance” it says this
Take the amount of coverage you have $60,000 divide it by the Value at loss $120,000 Multiply that fraction by your loss that will equal your recovery.
$60,000/$120,000 = ½ X 10,000 (ACV) = $5,000 ; still happy?
Fortunately, the company will pay the GREATER of the amount.
Those of you who own commercial property there is no first option – you will be paid on the second more severe “Coinsurance” calculation.
Commercial or Residential your mortgage company will certainly not be happy. Now read your mortgage, have fun doing that, you thought the insurance policy was bad. They insist you have or at replacement.
NexisLexis on 06/22/2010 Published its Annual Guide To State Litigation Climates Shows Most Litigious States are according to Foundation for Fair Civil Justice FFCJ the top 10 most litigious states are New Jersey, New York, Florida, Illinois, Pennsylvania, Missouri, Montana, Michigan, Connecticut and California. Florida is number three.
Knowing this, along with knowing that not only can the insured sue the company and the insurance agent. All admitted companies doing business in Florida insist that your policy is written to replacement value.
If you are able to pay off your mortgage then you may “Self Insure.” But it is the philosophy of NuSurance to retain property risk but purchase as much liability as you can afford. Bottom line always have liability on your policy.
More Questions?
Call us 813 514 6982 or email us at info@nusurance.com
Posted on Friday, October 28th, 2011 at 8:17 pm | Filed under Uncategorized
