Replacement cost is often overlooked while shopping for homeowners insurance quotes. One of the critical missteps made by homeowners is to take out a policy that secures the mortgage, but not necessarily the structure. That statement may sound counterintuitive unless you are an experienced real estate professional, home builder, or work in the insurance industry.

The reason that tends to hold true is that a significant difference may exist between the amount you paid for your home and how much it would cost to replace it in the event of a loss. That difference will be reflected in the homeowners insurance quotes that your field. At Brashears Insurance, we don’t expect people to have in-depth knowledge about homeowners insurance, and we hope this information helps you make an informed decision.

Mortgage Coverage vs Replacement Costs

When people purchase a home, the insurance required by the lender is designed to protect its investment. While homeowners insurance provides a wealth of security in the event of a loss, the bank’s interests may not be perfectly aligned with yours.

For example, should the home be destroyed in a fire or natural disaster, the lender sees the coverage as supporting the loan’s repayment. So, if you purchase a $250,000 home with equal coverage and it’s a total loss, the mortgage is supported. But what if it costs $300,000 to replace the home? The difference in coverage and replacement costs could come out of your pocket. That can be a hard lesson for homeowners to learn.

This unfortunate scenario may arise when people do not thoroughly review their homeowners insurance quotes and consider actual replacement costs in their area. The difference between today’s materials, labor, building codes, and permits can exceed the value of a home that was built just 10-20 years ago. Another potential pitfall is that older homes may be crafted with materials that are considered “specialty items” in today’s construction sector. Restoring a historic home to its original luster can be quite expensive.

Reconcile Homeowners Insurance Quotes with Replacement Costs

It would be unreasonable to expect every home buyer to also be a construction expert. Fortunately, the internet and a homeowners insurance professional can provide guidance. When reviewing homeowners insurance quotes in the context of replacement costs, these are things to consider.

• Cost of razing the structure

• Cost of local permits

• Changes in building codes

• Current and anticipated construction costs per square foot

• Cost of specialty items or design

• Access to labor in your area

In the construction industry, it’s also a common practice to arrive at an estimate and then add 20 percent for unanticipated overruns.

With this information in mind, it may be in your best interest to review an existing policy. If you are in the process of buying a property, be sure the homeowners insurance quotes you field realistically cover total replacement costs. At Brashears Insurance, we’re here to provide homeowners with secure coverage you can rely on. Contact us for a quote that meets your coverage needs.