Coinsurance/Insurance to Value Revisited: An Essential Concept in Property Insurance

A second option, for a nominal fee, is to have the report sent to only the homeowner. The third option, also for a fee, is to have the report sent to the homeowner and agent.

Free Sites
Several of the free sites examined ask for very little information and seem more geared toward providing a market value or selling price for the home than a replacement value. One free site, however,, includes a fairly detailed questionnaire that takes approximately 10 minutes to complete and gives consumers a bottom line cost to rebuild the home, including categories for material, labor and equipment. As a caution, some of the terminology used in the questionnaire may appear unfamiliar to many consumers, although the site does provide prompts that explain different styles and types of siding, roofing, kitchen and bathroom levels of quality, etc.

The more information provided, the more accurate the estimate will be. In most cases, it appears that the agent comes up with a figure in consultation with the insured that is based on a replacement cost estimating tool, usually the Marshall & Swift program. Most insurers will conduct some kind of inspection to confirm the replacement value, but inspections vary by insurer. Some insurers inspect virtually every unit to be insured, while others do a “drive-by” inspection which looks at the exterior of the home but not the interior. Still others conduct inspections when the dwelling coverage limit requested exceeds a certain amount, while others do random inspections.

As one insurance claim executive observed, estimating systems are only as good as the information that is fed into them. If the information is sketchy, the resulting replacement cost figure will be suspect. The Marshall & Swift program, however, asks the right questions, according to the executive. But without an on-site inspection, there is always the chance that the figure established from the estimating tool may not be totally accurate.

Homeowners need to realize that replacement cost or replacement value is not the same as market value. Replacement cost estimates are influenced by supply of labor, demand for labor and cost of construction materials. So while real estate market value may be declining in a down economy, that does not necessarily mean that construction or rebuilding costs will also be declining.

bridge under construction

Despite downturns in the economy, worldwide demand for construction materials increasingly impacts costs. China and other countries invest heavily in building infrastructure, including copper, concrete and steel. The chief component in asphalt roof shingles is oil, and the price of oil, while at times volatile, has generally been rising. Staying abreast of the current construction costs and market conditions in the area, and updating the amount of coverage when necessary, will help maintain accurate replacement cost coverage for the home.