Home Insurance Rates and Replacement Cost

Frequently asked questions regarding Home Insurance:

Click this link for a report presented by Fox 9 News regarding rates in Minnesota     


Home Replacement:  Insurance replacement vs Market Value/Consumer Replacement

What is my home worth?  Market value vs reconstruction cost.

Many homeowners equate the "worth" of a home to its market value, especially if the  home was a recent purchase.  While market value is a valid calculation of a home's worth for buying and selling, it has little to do with the cost of rebuilding.  The Estimate by the insurance company is the amount to reconstruct the home at today's costs.

Why is reconstruction cost more expensive than new construction?

Economies of scale:     

It costs more for a contractor to build one home at a time because materials are not purchased in bulk.  A single household item that matches the one that's been destroyed will nearly always cost more than if it had been part of a larger purchase.

Top-Down vs Bottom up:

Repair work for a partially destroyed home is done from the top of the home down.  This is more time consuming and labor intensive.

Demolition and debris removal:

This step is necessary before reconstruction can begin and adds significantly to the total replacement cost.

Use of Labor:

When a builder constucts many homes at once, they can efficiently schedule labor for carpenters, plumbers, electricians and other workers.  For a single rebuild, labor is not as efficient and contributes to higher costs.

Access to worksite:

Worksite access is easier for brand new construction.  for reconstruction, obstacles such as neighboring homes, trees, lawns, fences and other landscaping prevent easy site access.  This makes it difficult to transport materials and can drive up labor costs.

Building Code Changes:

Changes to  building codes may require costly updating, even for undamaged parts of a home.  This could include updating wiring or other utilities and is costly, especially for older homes.

Natural Disasters
After a natureal disaster, the costs of building materials and labor rise dramatically because of increased demand.  Over the past 20 yrs, there has been a significant increase in the frequency and severity of weather events, resulting in a high number of losses that require repairs.

Protecting Undamaged Parts of the Home and contents:

Keeping a partially destroyed home from further damage until permanent repairs can be made adds to the overall cost.  This could involve covering a damaged roof or holes in walls.

Specialized Labor is more costly

Reconstruction is often completed by contracors who specialize in rebuilding as opposed to new construction contractors.  Their specialized labor tends to be more expensive.

Replicating old construction methods and materials

A standard homeowners policy provides for replacement with like kind and quality, which means replicating a home as it stands today.  In holder homes, interior walls are often made of plaster instead of drywall and exterior brick walls are made of solid brick insted of modern brick veneer.  Homes constructed prior to 1940 were built with full dimensional lumber, which is larger and more costly than typical modern lumber.  Because of features and materials such as these, older homes especially those built prior to 1940 , cost more to replace.  In addition, rising costs of commodities contriutes to the higher reconstruction costs.  For example, petroleum based materials such as shingles have increased in cost dramatically.