What if your house burned down today? Do you have enough insurance coverage to rebuild it? Here in Franklin Tennessee, rebuilding costs range from $80 per square foot to $200+ per square foot. Look at the latest “declarations” page on your homeowners insurance policy. What’s your “dwelling” coverage amount? Divide it by the square feet of heated and cooled living space and you’ll know how much coverage per square foot you have available. Is it enough? Check to see if you also have “Extended Replacement” coverage, which adds an extra % on top of that “Dwelling” amount, if needed.
An overlooked but important part of this calculation is the cost for removal of debris (the pile of rubble after a fire or tornado, for instance), which is roughly $6-$8 per square foot, so don’t forget to account for that.
Some may think the dwelling amount should be the same as their purchase price or loan amount of their home, but that’s not accurate. For instance, you don’t need to insure your land, because it’s not going anywhere, even after a catastrophe. It’s also not wise to compare the amount of reconstruction money you’ll need to the cost of new construction of similar homes in the area. It usually costs more for a general contractor to build a “onesie” than to take advantage of economies of scale when building many homes in a subdivision.
These days, insurance companies won’t make an ironclad guarantee to rebuild your house, no matter what. You and your agent just need to make sure there’s enough money available to properly do the job, should the unthinkable happens.