Chubb Personal Insurance has sent out another of what should be a series of revealing documents that compares the actual value (replacement cost) and market value of a home. The document states the following:
- A New Jersey home was bought for $1,060,000 in 2004.
- In 2005, Chubb appraised the home for $1,502,340.
- To keep up with inflating construction costs, insurance coverage was adjusted upwards by about 5% annually.
- In December of 2011, the home was destroyed because of Christmas tree lights overheating and catching fire.
- Because of the 5% upward adjustment each year, coverage at the time of loss in 2011 was $2,036,000
- The most recent-to-date Market Value estimates of the home:
Zillow market value estimate: $1,377,500
Trulia market value estimate: $977,000 - Final building settlement (restoring cost of home): $2,036,000
“As a result of maintaining coverage adequacy during a period of economic recession and declining real estate values, the client was able to rebuild within policy limits with like kind and quality of materials, effectively ensuring total indemnification against the loss.” Chubb prevention tip: Connecting multiple light strands can create electrical overload — check the rating of decorative lights and consider replacing them annually.
Market value doesn’t reflect upon actual rebuilding and restoration costs after a covered loss. It’s important to maintain your insurance to the insurable replacement value of your home (while keeping up with rising construction costs.) Especially during times of declined market values. This ensures if there were to be a catastrophic loss, you could replace everything that was lost, as if the event never happened. If the homeowner in this situation covered their home to the market value of $1,377,500, they would have been $658,500, in debt instead of zero dollars! Imagine!?
If you want to read the full Chubb document, click the following: New Jersey Loss Scenario #2. If you have any questions about market value versus replacement value of a home, feel free to contact us! 845-986-1177
Here are a few additive Christmas tree fire prevention suggestions:
- Buy flame-retardant or non-flammable decorations.
- Check old light wires for wear or brakes.
- Don’t link more than 3 strands together.
- Water your Christmas tree regularly so it doesn’t dry out too quickly.
Have a wonderful day!