Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: May 31, 2019

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Insurance Question from Scottsdale, AZ

Asked on 05/31/2019

Assume that a home is purchased for $700,000.00. What should the home be insured? If the lot is worth $200,000.00, would $500,000.00 be the correct amount? No further details needed.

Answer given on June 02, 2019

Homeowner insurance is not based on the purchase price of the home, but the rebuilding cost of it. The cost is based on the square footage times the local building costs.  Decks may be lower in per square foot costs.

Many homeowner insurance companies use a formulary for rebuilding costs and others used actual costs for the area.  The actual cost basis is a more accurate formula than an insurance company formula since it is based on local costs where the formularly may be a national or regional number so not as accurate. 

Talk to  your insurance agent or company for their estimate of the replacement cost.  You might also consider speaking to a contractor for their idea of building costs.  Do not try to go cheap, as it could hurt you in the long run if there is a major, catastrophic loss such as a wildfire, major storm or the like.


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