I don't have much to say on your particular issue, but in my experience, 1. insurance companies tend to overvalue homes and 2. it costs more to rebuild than you would ever think. Number 2 mostly applies to existing homes, though, so I'm not sure about your situation.

i.e. I bought my house for about 1/3 of what it would cost to rebuild (it was built in 1910).

It doesn't necessarily matter what a house sold for, insurance companies are mainly interested in what it would cost to rebuild a replica of your home.

Insurance companies uses standard estimating manuals that price building by square foot, with a few factors for workmanship and quality.

What the sales price of houses around you has nothing to do with the price to build a similar house on your lot.

It cost more to rebuild 'like kind' (like plaster walls) if you have an older house.

When I get insurance, I think about catastrophic events. I don't need to be insured so that I get reimbursed if someone steals my tv. I want to be insured when the whole thing burns down. Too many people fail to insure adequately because: 1) they want to save a little money, and 2) they think they probably wouldn't have a total loss. How would you feel if you saved $100 a year by decreasing coverage, and then your house got wiped out and you had to pay an extra $50,000 out of pocket to make up for what the insurance won't?

What you get with a claim depends on your insurance company: some are better, some are worse. If you are underinsured on your property, it may make the claims process much more difficult. By all means, contact your insurer and ask them about how they value and how they reimburse. That would be better than depending on strangers in this forum to give you reliable answers. Using some rough rule of thumb like: "We could rebuild our home for less than half of 'X'" sounds like a dangerous assumption.

Thanks for the replies.

Our house is brick and genuine stucco on a poured concrete foundation on 1.3 ares. We're a mile from a fire station. IMO it is extremely unlikely that our house would 'burn to the ground'. It is much more likely -- though still UNlikely -- that we would have partial damage.

Can anyone tell me how insurance settles partial damage claims? (I wouldn't want to lower the overall coverage if that means partial damage claims would be set at a lower rate.)

I'm citing the neighboring home because it is new construction. I'm using "X" because I don't want to state real numbers on a public forum. I'm trying to determine what it cost to build THAT home per square foot to learn what it would cost to re-build our 2001 build today. The houses are of similar quality, and I know the builder was in a bind to sell (doubt there was much profit).

I've erred in my calculations. Although our lots are similar size, that house is double the size of ours. Our lot accounts for half the market value of our house, but not in their case. I have to allow for their greater square footage. So...the probable cost to rebuild our house is 75% of their selling price.

Now it looks like our insurance coverage is only slightly high. (sigh)

May I throw out another factor? We would not choose to re-build this house if it were destroyed. Although we hope to live here another ten years, we are Seniors. Would we have to re-build to collect insurance? (I think the answer is yes.)

As I understand it, if you are under insured, that is, insured for less than the actual value of your home, you are considered to be a co-insurer. If you have a partial loss, you will receive a proportionate partial settlement for your damages.

Example: House is worth $500K, but is insured for $300K. A fire does $300K of damage. The insurance pays $180K, not $300K. The owner is responsible for the remainder under the theory of co-insurance.

I am very surprised no insurance industry professionals have posted to this thread.

Your lot size is irrelevent, the personal property, home and outbuildings are what is insured. The insurance company sets a cost to rebuilt, including costs of disposal, etc. I believe the insurance company used $200 per sf for my house. I couldn't sell it WITH the land for that, especially not in this market, but if I wanted to hire a top builder to take care of it all for me, that would be in the ballpark. I could do it for less if I acted as the GC myself, but in all honestly if anything were to happen I would let someone else take care of it. There woudl be enough stress without the daily BS of dealing with subs (again).

I know people who have had total losses on their homes and businesses, so never say never. There is a reason firefighters are sometimes called "cellar savers". That is not derogatory to them, there is only so much you can do when the hydrant doesn't work, the wind is whipping, the house was already well engulfed before they arrived, etc.

I suspect you are correct, creek_side. We'd have to pony up the difference on even partial damages if we don't take the coverage the company sets.

Sue36 -- The insurer has us at $302/sq ft. When I look at the neighboring home, that is in the ballpark for the build cost, given what it sold for. I know what the builder paid (overpaid) for the lot and I know he HAD to sell. (The house sat for two years; his investors finally wanted out.)

Thanks for the new term: Cellar savers. It's sure not worth a firefighter's life to try to do more in some cases. Maybe they are also 'containment artists' -- keep fires from spreading to neighboring buildings?

Anybody know about 'rebuild or no payment of claims'? Guess I'll HAVE to talk to our agent. Our good agent died and his replacement is a jerk, which is why I'm asking questions here. We've been with State Farm for decades, but this guy makes me wonder why we stay.

If he's a jerk, get a new agent. There's a million agents for State Farm. No reason to stay with an agent you hate.

I'm an insurance agent in Texas, so i'll give you my opinion. Obviously, insurance regulations differ by state and by company.

Creekside is correct regarding coinsurance. Most policies have an 80% coinsurance clause. In plain terms, you are agreeing to insurance the house for at least 80% of the replacement cost, otherwise you will incur a penalty. If it takes $300,000 to replace the house and you only insure it for $200,000, you are under the 80% ($240,000) required. Then if you have a loss (even partial), they will adjust your loss settlement by a factor depending on how far under the 80% you are insured.

Regarding the value, you most likely have a replacement cost policy. Therefore, the loss settlements are paid based upon replacement cost (i.e. You will be paid for a new air conditioner, and not depreciated for 10 years because your old one is 10 years old). So if you have a replacement cost policy, you have to insure it for replacement cost (or at least 80%, depending on the particular company). The value of that replacement cost is normally judged by the specific company. Insurance companies contract out replacement cost calculations to other companies like MSB (Marshall Swift Boechk). Your insurance agent will input specific data about your house, and it should generate a replacement cost that the company wants to insure it. The accuracy of these replacement cost calculators can vary. I am an independent agent, and I can use 3 different company calculators, and come up with three very different values.

Regards to payment on a partial loss, if you have a replacement cost policy and you are insured for at least 80%, then your loss will be for replacement cost for all damaged items (for like kind and quality) assuming it is a covered loss.

If you choose not to rebuild, then you will probably not get all of your loss payment. Most companies will pay the actual cash value of a loss at the time of the loss and withhold the depreciation until you submit proof that the damage has been repaired. For example, you have a 10 year old roof. The cost of new roof is $8000, and they determine the actual cash value is $5000 (10 years depreciation)...they will only pay you $5000 now until you submit proof that it was replaced before you get the balance (less your deductible). This is to combat the practice of people submitting claims, not getting the repairs done, and then filing again in the future with another company for a prior loss.

Your insurance agent should be able to answer these questions for you. Have you not contacted him/her about your questions/concerns?

Thank you, twolabs! Let me make sure I understand what you are saying:

State Farm wants to insure our house on the basis of $302/sq ft. I can ask them to insure it on the basis of $242/sq ft (80%). If I insure at that level they will pay out fully on partial damage claims.

Is the only reason to insure at $302/sq ft to protect me at the higher figure in the event of total loss?

A friend of mine is a former insurance salesman.

According to him, you should periodically solicit quotes from new companies. You will often find the new company is less expensive than your current insurer, who is inclined to inch your policy higher and higher over the years as long as they can get away with it.

Because of news stories regarding some of their business practices and my own less than satisfactory dealings with them, State Farm is on a list of companies I will never do business with again.

I can tell you from personal experience i've been beating State Farm pretty soundly the past couple of years. However, that can change with the area you are in.

I don't quite agree with the former salesman that says they inch your policy higher and higher as long as they can "get away with it". All companies (well, more than 90%) will increase the value on your house each year by a certain percentage. This is to keep your house adequately insured (due to rise in building costs and inflation). If you insure a house for $200,000 and left it alone for 5 years and had a total loss...you would be greatly underinsured. So, the increase on the value of the house isn't just to see what they can get away with.

I do agree, however, that you should shop your coverage every couple of years or so. Companies increase and decrease rates often. When you shop your insurance, it would be wise to visit an independent agent. They don't represent just one company, but dozens. They work for you as the consumer, and not an employee of a large insurance company (i.e. State Farm, Farmers, Allstate). www.iiaba.org is the national organization for independent agents.

Chisue, I'm not 100% certain what State Farm's policy is in regards to coinsurance. That is something you'll need to ask your agent personally if you can decrease the amount you cover your house for. I have a company that requires you to insure it for 100%, and some that require only 80%. If I were you, I would just go ahead and call an independent agent and ask them to quote your house instead of trying to lower your value with State Farm. You might get another policy with another carrier for less premium and more coverage. It wouldn't hurt to shop it.

I will try to 'shop it'! However, I recently 'shopped' for auto insurance and while the bids from others appeared to be lower at the outset, once we got to apples and apples, SF was neck and neck with the rest.

Are there regional companies? Am I subsidizing payouts to people in flood/tornado/wildfire areas by staying with a nationwide insurer? (I am near Chicago.)

We have Travelers High Value Property Insurance. From your descriptions of your property, your home would probably fit in that bracket as well. We have been very pleased with them and the product offering.

Thanks for the tip, Dixiedoodle. (We aren't as 'high value' as our neighbors! LOL Bought a great lot and built a house less than half the size it's zoned for.)

chisue-
In your attempts to finetune your insurance, you could be setting yourself up for a problem. Doing something like valuing your house at precisely 80% of what State Farm values it so you can still be considered fully insured sounds like you will be skating close to the edge, and could fall off. I am curious: just how much will you save by tring to reduce your premiums? I live in an area where my house has a very high valuation. It's insured for 100% and I have chosen to have an automatic percent increase each year to make sure the valuation keeps up with the replacement cost. My premium is under $1000 a year. I could try to substantially undervalue it and saved maybe $100-$200 a year...which I would consider to be foolish and a false economy. Step back and look at what your objectives are for your insurance in a worst case (like total loss). I'm not saying you might not find a better insurer, but cheaper is not a guarantee of better when it comes to home insurance.

I appreciate your concern, Kudzu9. Don't worry, I won't lose sight of the objective of having insurance.

Our policy coverage increases automatically too. I just wanted to look carefully at what I'm getting when I see our annual premium continue to rise above $1000 WITH a 1% deductible!

Now I think we'll go back to 100% and bite the bullet on the premium, whether we insure with another company or not. You and all the other good thinkers here have made me think! Wisdom of Crowds.

"Are there regional companies?"

All insurance is regulated state by state.

The large holding companies (life SF) have a legal subsidiary in every state they do business in.

The state regulators are supposed to keep an eye on the companies.

They are allowed to make a profit in every state they do business in, and are not supposed to increase rates in one state to pay for losses in another (if the state regulators are doing their job).

Don't forget there is more than just the cost rebuilding your house and contents.
There is demolition of the old structure, disposing of debris, cost of alternate housing. Sometimes basements are not salvageable.

joed -- Yes, and of course that's all covered by the policy -- part of why it costs what it does. Good points.