This subject comes up a lot. The Texas Homeowners Insurance Policy is designed to rebuild your home new in the event of a total loss. Therefore, the amount you need to cover you home for is what it would cost to rebuild the home brand new today, if something was to happen to it. This is called the replacement cost of the home.
Many different factors are used to determine this amount. Things such as the year of construction, square footage of the home, location, quality of construction and type of interior finish out of the home, just to name a few. It is a complex formula that takes many different factors into account.
I often have people contact our office and say that they believe their home is over insured because the homeowners insurance coverage amount is above what they could sell their home for or above what the tax valuation is on the property. That is a very different number and would be considered the market value of the home instead of the replacement value of the home. Again, the market value is what you could sell the home for and the replacement value is what it would cost to rebuild the home brand new today. These are often very different numbers.
The replacement value will take into account things like debris removal, site preparation and the increase cost of reconstruction in the event of a major loss, such as a fire. Only specialty contractors will do this tyope of work. In many cases, they will have to demolish what is left of the home, remove all trash and debris and prepare the site for reconstruction. This alone is very expensive and must be taken into account when determining the replacement value of your home for homeowners insurance valuation purposes.
Contact your insurance professional (VGW Insurance) to discuss this in more detail and request that an updated replacement cost coverage evaluation be done on your home. You do not want to find out that you are underinsured when you need it the most, at the time of a claim.