A Replacement Cost Estimate (RCE) is the value that insurance agents estimate to calculate dwelling coverage for a given property. This is the part of your policy that determines how much you will be paid in the event of a loss to the building.
It is vital to insure a property to 100% of the replacement cost to ensure the building will be covered in the event of a total loss and to avoid coinsurance penalties in the event of a partial loss.
In order to calculate the RCE, insurance companies use a variety of software that takes many factors into consideration to generate the replacement cost value. This includes things such as square footage, number of stories, ceiling height, construction style, number of bathrooms, overall quality adjustments, and much more. Do not be surprised if your insurance agent asks you about all these details – we just want to provide the most accurate estimate for your property!
Why is the replacement cost so much different than my home’s market value?
The market value of a property value is completely separate from the replacement cost of a dwelling (the ‘box’ that is on the property) and depends on a variety of factors such as recent property sales, the condition of the home, school zones, crime rates, views, land and neighborhood.
Whereas the Replacement Cost Value only contemplates the cost of rebuilding or replacing the building with like-kind materials and labor. The insurance company does not insure crime rates, school zones, land, or other intangibles.
After an insurance policy is issued, the insurance carrier will also conduct an inspection of the property. The primary goal of the inspection is to confirm that the policy was issued with an adequate amount of coverage (neither over nor underinsured). Thus, it is important to keep in mind that our replacement cost estimate is just that - an estimate - and may be subject to change based upon new information that could be revealed at the inspection.
In addition, the inspector will be on the lookout for any “substandard conditions” that should be addressed. This can include things such as an old roof, trees overhanging the home, or other safety issues.
Legally, there is no such as thing as a mandatory recommendation. However, the insurance carrier has a right to refuse coverage in case they detect high-risk conditions that make insuring the property an especially risky proposition.
If an inspector does identity any recommendations which must be addressed, the insurance company will reach out to the agency and the insured to communicate the issues and we will work together to resolve any problems as efficiently as possible.
Finally, an inspector/carrier may make optional recommendations – while these are optional, these recommendations should be taken into consideration to help prevent future claims or maintenance issues.
The inspection is always done for the benefit of the insured – to identify potential problems before they become serious issues and to ensure your property is as safe as it can reasonably be. Insurance carriers are typically very flexible and will give clients time to resolve any issues – for example, repaving a broken parking lot or sidewalk can typically wait until the spring when it is reasonable to do so.
Timetables should always be discussed with your agent – in rare situations, time might be limited so it’s always better to coordinate with your agent on any inspection issues.
We are always here to help guide you through the process. Contact Kovalev Insurance today and request a complimentary consultation to ensure your property is adequately protected.