The Florida Association of Insurance Agents (FAIA) recently issued an article in which it shared crucial information with its agent members. With the FAIA’s permission, we are sharing this with all of our licensees. Before making representations to a lender, we recommend contacting the insurer insuring the policy if you have questions about coverage levels, limitations, and exclusions.
It’s fairly usual for a lender to contact the customer’s insurance agent during the process of preparing to complete a loan to verify that a valid insurance policy is in force. Some of the requests made by lenders, according to David Thompson, CPCU, of the Florida Association of Insurance Agents (FAIA), seek the agent to promote a certain coverage that is not covered by the insurance policy. Agents that make false claims are in violation of Florida Statute 626.9541(1). (a). As a result, the Florida Department of Financial Services may take disciplinary action against the agent, which could include the loss of their insurance license.
The most typical demands now, according to Thompson, include phrases like “100% replacement cost,” “guaranteed replacement cost,” and “replacement cost up to policy limits.” None of these requests are supported by most insurance policies, and insurance brokers should not make such claims. For example, stating that a policy includes “100% replacement cost” would almost certainly be interpreted by the average person to mean that the policy pays losses on a replacement cost basis at all times, or that the policy would pay 100% of the rebuilding cost even if the rebuilding cost exceeded the policy limit. The insurance coverage, yet again, contradicts such claims.
There may be some misunderstanding about the “100% replacement cost” statement. “Does this policy have an amount of insurance that is at least equivalent to 100 percent of the estimated replacement cost of the structure?” a lender should question the insurance agent. An insurance agent should always write coverage that is at least equivalent to the insurance company’s anticipated replacement cost, according to Thompson. The following is permissible, according to FAIA’s agents:
This agency follows the industry standard of insuring structures for their projected replacement cost as assessed by the insurance provider. Building limits are just estimates, based on data provided by the policyholder and/or industry-standard algorithms used to estimate replacement costs. The actual cost of rebuilding the structure may exceed the policy limits, particularly in the event of a catastrophic occurrence and/or when repair or replacement is governed by an ordinance or statute. The agency cannot guarantee that the policy limits will be sufficient to reconstruct the structure.
In a similar matter, today’s lenders frequently require a copy of the Replacement Cost Estimator (RCE) that was used to determine the level of coverage. Because certain insurance companies and RCE vendors forbid agencies from disclosing that confidential information to a third party, lenders should not ask insurance agents for it. If a lender so desires, they can sign up with an RCE vendor and receive their own RCEs.
Remember that a lender who refuses to approve an insurance coverage for any reason is in violation of Florida Statute 626.9551. Requiring a customer to purchase insurance from a specific insurer or agent is likewise illegal under the same statute.
The goal of both lenders and insurance brokers is to get the customer into the structure with a completed loan and proper insurance. However, lenders must be aware of the exact language that insurance agents are permitted to use and are not permitted to use.
What is RCE replacement cost estimator?
What is a Replacement Cost Estimator (RCE) for a house? Insurance companies utilize a home Replacement Cost Estimator to estimate the cost of rebuilding your home in the event of a total loss. This cost estimate can be found under Dwelling Coverage or Coverage A on your insurance policy.
How is reconstruction cost calculated?
The overall cost of rebuilding your home to its original condition is known as the home replacement cost. To be fully insured, your dwelling limit must be at least 80% of the rebuild value of your property. The average per-foot rebuilding cost in your area can be found by multiplying your home’s square footage by the average per-foot rebuilding cost in your area.
What is a cost estimator for insurance?
A Home Replacement Cost Estimator (RCE) is a tool used by insurance companies to estimate the cost of rebuilding your home in the event of a total loss. This cost estimate is listed under your housing policy, or Coverage A, by your insurer. According to the Lighthouse Excalibur Insurance Company, there are five things to remember concerning RCEs:
- RCE ensures that you have enough coverage in the event of a total loss, keeping you from overpaying for dwelling coverage.
- An RCE is a cost estimate based on the materials, labor, and permits used in the construction of your home.
- An RCE is an accurate way to figure out how much your home will cost to rebuild and how much dwelling coverage you’ll need.
- An RCE is not the same as a house appraisal. Recent property sales, the condition of your home, and the land are all factors in appraisals. Only the materials and labor of rebuilding your home are considered by RCE.
- An RCE enables you to cover your home for 100% of its estimated replacement cost, avoiding out-of-pocket costs.
Is reconstruction cost the same as replacement cost?
We’ve all been in the position of looking over an MSB Building Valuation and comparing it to a building’s current policy valuation. While the building’s replacement cost is reflected in the policy, the insurance policy actually responds by providing a reconstruction cost. What’s the difference, you might wonder?
The cost of constructing or replacing an entire building with equivalent quality and construction is known as replacement cost. Site upgrades, demolition, debris removal, fees, premium material charges, and other construction-related costs are not included in the replacement cost. The cost of replacement also presupposes that current building materials, designs, and layouts are available and will be employed.
The cost of reconstructing a structure at current construction prices, utilizing similar and high-quality materials, construction standards, design, layout, and quality is referred to as reconstruction cost. Additional charges linked to repair and restoration contractors’ fees, the construction process itself, the location of the property, demolition costs, and debris removal are included in the MSB reconstruction cost. These variables result in a higher valuation than a new construction.
Items given for and included as property items inside the ISO Commercial Property form will not be included in a builder’s fee for new construction (CP0010). These additional charges are integrated into the MSB Rating system.
Contact an R&R knowledgebroker if you have any queries concerning your Commercial Insurance Policy.
Is reconstruction cost the same as dwelling coverage?
Dwelling coverage is the part of your HO3 homeowners policy that covers the physical construction of your home. The sum needed to rebuild your home (as it was before it needed to be rebuilt no upgrades!) should be included in your reconstruction expenditures. Your Reconstruction Cost Estimate, or RCE, is the dollar amount.
How do insurance companies determine replacement value of home?
The cost of replacing a house is exactly what it sounds like. It’s the cost of repairing or rebuilding your home if it’s completely damaged.
The cost of replacing a home varies depending on the coverage you choose. However, the cost of replacing materials, energy costs, labor prices, and fees can all be added up to provide a rough estimate.
In brief, while determining the replacement cost of your home at the time the policy is acquired, the insurer will consider a number of factors, including the size of your property. This estimate may become outdated over time, and an incorrect assessment may result in you being uninsured. According to property analytics firm CoreLogic, almost 60% of homeowners have this issue.
Several considerations, like the value of the land on which the home sits and the cost of dismantling what’s left of the property, will be ignored by insurers when determining a home’s replacement cost.
Applying the 80 percent rule is common procedure in most cases. In other words, insurance should cover at least 80% of the cost of replacing a property. If this isn’t the case, even if the coverage amount exceeds the cost of property damage, your insurance may not cover all rebuilding costs.
What is a Marshall and Swift report?
The Marshall & Swift Valuation Service is a comprehensive and authoritative appraisal resource for determining replacement costs, depreciation values, and insurable values for buildings and other improvements. It includes expenses for a variety of construction classes and types of occupancies, ranging from warehouses to medical facilities.
How do I calculate the rebuild cost of my property?
It’s the total cost of entirely rebuilding your home, including materials and labor. The rebuild value is generally found in:
How do I calculate dwelling coverage?
Simply multiply the square footage of the home by the local rebuild cost per square foot to get a ballpark approximation of your dwelling coverage amount.