carl c asked in Business & FinanceInsurance · 1 decade ago

House Fire in log home How Home insurance works?

We had a fire in my log home last week, The fire was put out by the fire department but house has a lot of water damage, It looks like I have lots of insurance, The Building has 400k of coverage and I payed 320K for the house 3 Years ago. However the policy has a Log Construction Exclusion "The above location is of log construction both endorsement 44 (Guaranteed replacement cost ) and endorsement 78 (single amount of insurance ) are excluded" could any one explain this exclusion

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  • Gambit
    Lv 7
    1 decade ago
    Favorite Answer

    On a normal Homeowner's policy there will be a limit for the Dwelling/Building, which represents the most the insurer will pay to rebuild the house. The problem is building reconstruction costs increase, and in some cases they can vary wildly in a year. So the limit that was appropriate at the beginning of the policy term may not be sufficient to cover the cost to rebuild the home six months into the policy. So once upon a time an insurance company came up with the idea to offer an endorsement that guarantees the insurer will pay whatever it costs to rebuild the house, even if the costs are more than the limit of the policy (now every insurer offers this to be competitive). The one important condition is that the house be insured to it's full replacement value at the time of application (or renewal), the value of which is determined by various programs that insurers approve of and brokers/agents use. This way the client no longer has to worry about whether their limit is sufficient to rebuild the house. The problem with log homes is that it's pretty near impossible to determine how much it costs to rebuild one without having to hire a contractor to actually build one and report how much it cost afterward. As there is no program out there that can accurately estimate how much it costs to rebuild a log home very few, if any, insurer is willing to provide Guaranteed Replacement Cost on the building. That means is it costs more than $400,000 to rebuild the home (what you paid for it is no indicator of what the replacement cost is because you have to factor in debris removal and site/foundation preparation) the insurer will not pay any more than the limit of the policy, which means you will responsible for anything beyond that.

    As for endorsement 78, the vast majority of Homeowner's policies have separate limits for: 1. the building; 2. detached private structures (detached garages, sheds, gazebos, etc); 3. personal property; and 4. additional living expenses (the extra costs incurred should the home be damaged by a peril covered under the policy and made uninhabitable). Some policies have one limit for all for four items (usually calculated as twice the building limit). This is usually done if you have a client that has no detached private structures and/or the personal property limit is way above the replacement value of their contents. The theory is the limits that are not used or under used under one coverage can be used to increase the other coverage. So the limit that would be provided for detached private structures can instead be used to boost the limit of your additional living expenses. The insurer has excluded this endorsement from your policy because a single limit is one way for a clever agent to ensure a client who does not qualify for Guaranteed Replacement Cost can have some additional coverage should the limit for the building be insufficient yet the limit for the other three items is excessive. The insurer seems adamant that they will not pay more than the policy limit to rebuild the home.

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  • 1 decade ago

    Your agent can explain it best.

    Assuming that your house would cost less than $400K to rebuild, the GRC endorsement restriction won't come into play.

    I have NO idea what the "78" endorsement means. I did a quickie search, but don't have anything related to it in my reference forms.

    Typically, though, insurers don't like log homes, because it's almost impossible to repair just one part of it - if a small corner is burned, you actually have to deconstruct and reconstruct the entire structure. I'd strongly suspect that the endorsement limits how much of that the insurance has to pay for. But YOUR AGENT should be able to give you a firm answer.

    **Guaranteed replacement cost is NOT the same thing as replacement cost. The guaranteed bit means, even if it costs more to rebuild your house, than you have insurance, we'll still rebuild it. Not having it, does NOT automatically mean that your house is insured on an actual cash value basis. MOST insurance companies are no longer offering true GRC coverage on their policies.**

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  • Jamie
    Lv 4
    4 years ago

    Stop calling direct writers and call an independent agent and get a quote on homeowners and flood coverage-- he can makeup a comprehensive package of policies for you, to make sure you have adequate coverage. The independent agent can shop the deal to companies that underwrite properties near/on coastal waters. Allstate, Geico, State Farm, are all companies that have severely curtailed their exposure- and, they are all direct writers. In this case, the direct writers are the worst way to shop the coverage. Good luck!

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  • 1 decade ago

    without knowing where you live and reading your policy it sounds like they have excluded replacement cost on the policy. that means since it is a log home they have written it on actual cash policy... (NOT GOOD) and i am VERY surprised your agent didn't explain this to you BEFORE you wrote it. many companies will not write log homes and they should have found you one that would with replacement value if they could. Boo to whoever your agent is for NOT explaining your policy and exclusions to you BEFORE you bought it.

    Source(s): agent
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  • 1 decade ago

    talk to your agent, how could they insure a log home with a log construction exclusion?

    http://lp.nationalunderwriter.com/fcs/lpext.dll/In...

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  • Anonymous
    4 years ago

    I don't really know how to answer this

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  • 3 years ago

    it sounds weird

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  • Anonymous
    3 years ago

    Thanks everyone for the answers!

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