Guaranteed Replacement Cost?

[al123]

Hey Everyone,

I'm fairly new to insurance, I just came across a prospect who insists that he has a "guaranteed replacement cost" for home insurance. He explained to me that if his dwelling amount is only at 250,000 and it took 1 million dollars to rebuilt then the company will pay out for the loss. However, I'm with a captive and we provide 125% for the dwelling. Does this coverage still exist, how would these companies profit if they have the guaranteed replacement cost.

What are the down side to this type of coverage. How can I convince him to switch over to a policy with 125%. He is just worried about the coverage amount and wants assurance that his home will be rebuilt no matter what?

Any suggestions?

 

[benwrigh]

I think Erie has an endorsement for guaranteed replacement. Safeco has a 50% extended coverage endorsement (at least they do here in IN).

I would explain how the replacement cost is calculated to assure him that there is sufficient coverage. And there is an additional 25% available should something cost more than anticipated. Not sur sweat else you can say. The good news for you is that for the most part, the competition can't do much better.

Imagine the additional risk a company takes on by having the word guaranteed in the contract...

 

[Bertolinoins]

He must be a Dave Ramsey listener. I have one carrier that offers up to 200% but none that are guaranteed replacement cost. Might want to look into Chubb but I doubt he can find it anywhere.

 

[Herkster]

Hey Everyone,

I'm fairly new to insurance, I just came across a prospect who insists that he has a "guaranteed replacement cost" for home insurance. He explained to me that if his dwelling amount is only at 250,000 and it took 1 million dollars to rebuilt then the company will pay out for the loss. However, I'm with a captive and we provide 125% for the dwelling. Does this coverage still exist, how would these companies profit if they have the guaranteed replacement cost.

What are the down side to this type of coverage. How can I convince him to switch over to a policy with 125%. He is just worried about the coverage amount and wants assurance that his home will be rebuilt no matter what?

Any suggestions?

Sounds like a co-insurance issue to only be insured at 25% of the value of the home. A partial loss would be killer to the insured at this point..

 

[benwrigh]

Sounds like a co-insurance issue to only be insured at 25% of the value of the home. A partial loss would be killer to the insured at this point..

I think you misread the post. It is one hundred twenty five percent.

Edit: looks like it was I who misread your post

 

[kongsmasher]

Herksters got it right, and makes the best point. 250k is 25% of 1M causing a coinsurance issue. I doubt I its "guaranteed" replacement at 25% even if he had a total loss. I would work the angle of how his agent must have done a poor job describing coverage or is a dirt bag.

 

[djs]

Not sure what state you are in, but I don't think there is a single carrier in California (and probably most other states) that offer guaranteed replacement cost coverage anymore. Used to be a thing, no longer.

They apparently have a policy that they have had for a long time. If the premium isn't outrageous, you won't talk them out of it. Time to move to the next. If the premium is high, then you might be able to do it......

Why? Agents used to compete for policies knowing the policy had guaranteed replacement coverage, so they would drop the dwelling amount to get the premium needed to win. Back in the day before computerized stuff, this was pretty easy to do. As carriers went to more automated reconstruction cost calculation and followup inspections, they did away with the guarantee and started extended replacement cost coverage.

In CA, carriers got killed in the Oakland Hills fire, where they were replacing $1M homes that had $50 in coverage on them. They basically said, never again.....

But, in this is the reason you no longer really need guaranteed replacement cost coverage. Since the home characteristics are loaded into the system, you can get a pretty good idea of the actual reconstruction cost. Price variations are dealt with by the extended replacement cost. Next year, you look at it again, then the year after, etc. The reconstruction cost software knows a lot about the cost of materials, cost of labor, neighborhood variances, etc. While contractors on a specific job will get more detailed, it works very well.

Since the estimates are better, the guarantee is no longer needed. Only works if the premium is out of line though.

Dan

 

[kongsmasher]

Hmm. Thanks dan. The history always helps give perspective.

 

[Herkster]

Herksters got it right, and makes the best point. 250k is 25% of 1M causing a coinsurance issue. I doubt I its "guaranteed" replacement at 25% even if he had a total loss. I would work the angle of how his agent must have done a poor job describing coverage or is a dirt bag.

I guess it would be best if you could find a way to read through his current policy and see if he does in fact have this outdated/no longer used "guaranteed" replacement cost. Sounds like the insured is opening himself up for a boat load of trouble if a large hail or windstorm came through and he had a partial loss. I certainly don't think he would be happy with 60k in repairs and only getting 15k paid for by the insurance claim.

 

[al123]

Sorry guys for the confusion what I meant to say is we provide an additional 25% over the dwelling amount. I got a copy of his declaration page. It turns out he does haven a "guaranteed replacement cost". I'm in the state of MI and he is with a company called Auto Owners. I called a local agency that deals with this carrier and they confirmed that this endorsement does exist. However, you have to be qualified ie: age, dwelling amount.... Anyways I asked when a situation were a home is insured for 500,000 and it cost 1 mill to rebuilt. He said that rarely occurs and the insurance company makes sure that the dwelling amount is sufficient enough to cover the total loss and may pay on average 10-20% more on dwelling amount when a loss occurs. It seems like this type of coverage is exaggerated to me and portrayed to people as unlimited coverage because the software accurately estimates the reconstruction cost.

It's just a matter of explaining this properly to the prospect. We are only saving him about $200. What do you guys think. Any further suggestions?