• Dan Frankel

The Mystical World of Claims Payments Revealed!

Updated: May 31

Most of us don’t have the time (or inclination) to sit down and prepare a cost/benefit analysis on our home insurance. And unless you’ve already been working with Acacia Insurance’s team of experts, selecting home insurance may amount to throwing darts at a wall and hoping for the best.


Buying the right insurance coverage before a claim occurs is critical. The following illustrations show how most claims are calculated, laying bare the secrets of home insurance and providing some insight on how to select the appropriate insurance in the first place.

There is no worse time to realize you are not properly covered than the moment that you have a claim…and receive a fraction of the benefit you anticipated.


The first rule for home insurance claims


When obtaining insurance, most insurance companies require you to insure your home’s value at 100% of the replacement cost of the home. This isn't the market value, but is rather the cost to rebuild in the event of a devastating, catastrophic loss.


This "Insurance to value" ratio shoud be 100% to avoid any co-insurance clause, or language which reduces your claim payments.


The cost of construction, whether labor or supplies, has escalated significantly since 2019. The US Bureau of Labor Statistics estimated a 23% increase from 2019-2021, suggesting that the ypical replacement costs for homes in New England now ranges from $200 per square foot to $500 per square foot or more.


Example #1

Your home is damaged in a hurricane. The cost of repair is $10,000. Your policy limit is 100% of the replacement cost. You’re paid in full, less the deductible when you have completed the repairs. No problems here!


Example #2

Your home is damaged in a hurricane. The cost of repair is $10,000. The replacement value of your home is $400,000, but you have a policy for $200,000 (only 50% of the replacement cost). The deductible on your policy is $1,000, but you only receive a check from the insurance company for $4,000. Uh-oh.


Here’s how the claim amount was calculated:

  • The insurance company will pay a fraction of the claim, based on the ratio of purchased insurance to the actual value of your home.

  • $200,000 insurance carried/$400,000 actual value X $10,000 loss = $5,000, so…

  • $5,000-$1,000 deductible = $4,000 claim payment

The moral of the story? Insuring your home to 100% of its current replacement cost equals full coverage on a covered claim.

Acacia Insurance can help you select the right home insurance for your unique needs, and will work with you to estimate a fair replacement value for your home. We’ll provide you with expert assistance and unmatched service, as well as coverage that may extend to 125%, 150%, or even Full Cost Replacement Coverage. With Full Cost Replacement Coverage you are ensured repairs of like kind and quality at current prices, even when costs exceed the coverage amount – it’s a “best of breed” solution.


Ready to learn more?

Acacia Insurance has been helping to make the unexpected uneventful since 1988, and we look forward to working with you. Please contact us with questions and for additional information.


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