If you own a home in New Orleans not many homeowners know how much insurance they need on their homeowners insurance policy
There really are four different values to use on your policy and three of them are wrong
- Market Value
- Loan Value
- Appraisal Value
- Replacement Cost
Market Value is the value of your home including land value and it is usually the listing price if you were to put your home on the market
This value will fluctuate with the current interest rate and recent home sales in your neighborhood
Loan Value is the amount you owe on your mortgage
Mortgage companies and banks don’t understand the insured value
They only want the coverage for the amount of the loan and don’t understand you can’t insure land because… well after a fire, hurricane or tornado…the land is still there
Appraisal value is completed by an appraiser to determine market value of properties just like yours
All three of these values should not be used to determine the insured value limit on your New Orleans homeowners insurance policy
The correct value is called Replacement Cost or Insured Value
The Replacement Cost is the amount for you to hire a contractor to rebuild your home minus the value of the land
It is usually determined by a cost per square foot figure
Some brick homes could be replaced for $125 – $150 price per square foot
If you have a 2500 square foot home and a contractor says new home construction costs are $140/sq ft your 2500 square foot home would cost $350,000 to rebuild
Some Common questions we get about the insured value on a New Orleans homeowners insurance policy limit
1. Why do I have to insure my house for that much? My home is worth much less.
It has nothing to do with the value of your home in the current real estate market
You can find a 1100 square foot home in the Irish Channel of New Orleans sell for $350,000 and you can find the same 1100 square foot home in another neighborhood in Kenner La 70065 sell for $150,000
The insured value is based off the Replacement Cost (cost to hire a contractor minus land value)
2. I only owe 75,000 on my mortgage. Can I just write a policy for 75,000?
No. The replacement cost of your home has nothing to do with your loan balance.
It is the cost to rebuild your home based on the total square feet of your house
And you can’t under insure a house because of the co-insurance penalty.
If you have a 3000 square foot two story home and you only want to write a policy for 150,000 it could be determined that you are under-insuring the home at 50%
300,000 replacement cost and you only want 150,000
that is 50% of the replacement cost so if there is a claim you would be penalized 50% deduction off the claim check
example) House burns down and you want a check for 150,000 but since you under-insured the property by 50% the insurance company would deduct 50% off of 150,000 and give you a check for $75,000
You would not be able to rebuild a 3000 square foot home for $75,000
If you would like a professional review of your insured value on your New Orleans homeowners policy to make sure you are not under-insured or over-insured you can give me a call Tim D’Angelo at 504.348.3131 or complete our quick for below