Call: 203-637-6655 or email – Kyle Shepard

Dysfunctional but Rational - Shepard Insurance Group

Dysfunctional but Rational

Why is my home value $3M but is insured to rebuild for $4.5M?

We hear this question on just about every home insurance policy we renew for our clients. The easy response is that constructions costs bear little correlation with today’s real estate property values.

“Why is my home value $3M but is insured to rebuild for $4.5M?”

It is a process

To identify rebuilding costs our primary insurer Chubb begins with an investigation of 5 different independent rebuilding matrices, most of them, such as Marshall & Swift, use construction industry standards.

After this first step in arriving at costs, step #2 in the process is to factor in the actual claim data in revising the independent rebuilding costs. And as the final step in the process, feedback from local builders and contractors to confirm the final costs of construction for different grades of construction seen in our area. So the process appears to be rational in the approach in arriving at replacement costs for a home policy. But unfortunately the current construction cost, or replacement costs, have no comparative value to how much a home would sell for.

Lastly, as a final piece in this discussion, with 40 years of history, our experience has been that regardless of the replacement costs the average final claim has exceeded the policy limit, the replacement cost limit from anywhere between 25% to 40%. The Guaranteed “Full” Replacement cost endorsement has proven to be a valuable commodity in full recovery with a loss.

If you have concerns about your replacement cost give Kyle a call at 203.698.9342 or email him at

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