Page 35 - BusinessWest January 24, 2022

Amherst, noting that policies are based on what it would cost to replace the home and its contents if there was an event that resulted in the total loss of the home, such as a devastating fire or tornado.
Insurance companies also try to factor in cost increases in building sup- plies and labor, so some offer home- owners policies with extended replace- ment protection that will cover 25% or 50% above the insured amount of the home.
Michael Long, CEO of the Axia Group in Springfield, explained that, with recent hyperinflation in building materials and labor, extended coverage may not be enough. Lumber has expe- rienced a massive increase in price since the beginning of the pandemic, driven by supply-chain issues and an increase in demand. One measure for estimating building costs is the price for a board foot of lumber.
“Not long ago, a thousand board feet of lumber cost $345,” Long said. “It’s now up to $1,600 per thousand board feet.” That’s why one of the first conversations Long has with his clients is to make them aware of policies that offer guaranteed replacement costs that will cover rebuilding a home no matter what happens to the price of materials and labor.
While guaranteed replacement might be worthwhile for high-value homes, it can be expensive coverage. A more affordable way to keep pace with rebuilding costs comes in the form of policies with inflation-guard endorse- ments. Trish Woodbury, Personal Lines manager for McClure Insurance Agen- cy in West Springfield, explained that policies with inflation-guard coverage are designed to increase the limits of what the insurance company will pay based on the costs of materials.
“Customers ask us why their poli- cies increase each year, and the answer is the inflation guard, which keeps the policy in line with current construction costs,” she said.
Customers also ask Woodbury why the estimated replacement cost on
a homeowners policy is so different than the market value of the home. The main reason is that market value is driven by the ups and downs of the real-estate market and is calculated using the house as well as the lot it sits on.
“The estimated replacement cost
is based on all the specs of your house and the amount the insurance compa- ny will pay to bring you back to where you were before the incident that caused your loss,” Woodbury said. “We often have to explain the difference because it’s a far different number than the market value.”
That’s why including everything in the house from top to bottom is essen- tial to having it insured. For example, if people fail to report they have a fin- ished basement out of concern they may have to pay higher taxes, they won’t have coverage for a loss.
“We are not trying to uncover a tax — is there a TV room, workout equip- increase for the towns; our concerns ment, is there a bathroom down there?
“
house while there was a personal-liability judgment against you, the creditors could go after the proceeds from the sale.”
Water, Water Everywhere
The most common claim for a homeowners policy is water dam-
age from a leaking roof, burst pipe, or faulty toilet. Long pointed out that, if
a burst pipe happens when no one is home, damage can be substantial, and the claim can be huge, even approach- ing six figures.
Because water-damage claims are so common and expensive, Wood- bury said homeowners can now install devices to prevent a severe incident.
“One of the devices is an automatic
Policy
Continued on page 49
Without umbrella coverage, if you tried to sell your
are, if you have a devastating loss, we want to make you whole again,” Vas- sallo said. “If you have a finished base- ment, we want to know how finished
These are all important factors so we can come up with the appropriate replacement value and include it.”
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