Consider all factors in homeowners insurance

As for replacement and market value, policygenius.com explains it this way, "Although the vast majority of property owners have homeowners insurance, almost half of them mistakenly think the amount of homeowners insurance they need is based on the market value of their home. Basing your home's coverage limits on its market value can lead you to being over insured and paying too much for coverage or being underinsured and not having high enough policy limits to pay out for a full rebuild in the event of a disaster."

Having recently changed homeowner's insurance companies, the issue of the proper replacement value came up. The prior insurer and my agent had a higher replacement value, based upon their calculators, than my current company, after an exterior only inspection. We elected to go with the higher replacement value in order to be safe, but, in the end, it may mean that, after all of the arguing and negotiating if we had a total loss, we might be over insured. I talk about arguing and negotiating with the insurance companies and adjusters, because I have a lot of family and friends who have recently incurred partial home losses and the stress and time they have spent is eye opening.

I think that everyone knows that replacement value, market value, appraised value and assessed value can all be different.

As for replacement and market value, policygenius.com explains it this way, "Although the vast majority of property owners have homeowners insurance, almost half of them mistakenly think the amount of homeowners insurance they need is based on the market value of their home. Basing your home's coverage limits on its market value can lead you to being over insured and paying too much for coverage or being underinsured and not having high enough policy limits to pay out for a full rebuild in the event of a disaster."

Like everything else, it is important to have detailed conversations with your agent about this issue, as well as coverage for your contents. In that regard, I have used this event as an opportunity to revisit having a professional do an updated photo inventory of our home's contents, as well as the interior of the house for replacement value. It is a good idea because you may have things like columns, special crown molding, marble floors, special fixtures, special doors, etc., in your house that you may need to prove up. Also, make sure to keep copies offsite.

On the issue of assessed value for real estate tax purposes, I am still wondering if some municipalities have or will be raising assessments based upon increasing prices in some towns or neighborhoods. It is something to stay on top of if it happens to you, and then you may want to contest the reassessment, especially if there have been no changes in your home, like recent improvements.

On a different subject, the debt ceiling debate, I was once again numb to it, since we do this dance so often because Congress always ignores the current debt ceiling when it passes the totality of its spending bills in any given period between debt ceiling debates. Then I read that the U.S. Treasury was once again talking about deferring social security payments and government pensions. That's me, so it got my attention.

Since I write this personal finance column, I thought that I would try to explain the debate in terms that people could understand by analogizing it to a household that is always in credit card debt. So, the household has decided that it will live above its means, income, in order to "keep up," but that it will not allow their credit card debt to exceed $X, and that they will review and decide on the limit every December. Then every year when they decide that they have to go on that summer vacation, go out to dinner, put their children in those summer camps and possibly travel sports programs, or pay for those unexpected expenses that they didn't have an emergency account for, they don't either look to see if they are up for a raise or bonus that could pay for some of those things, or to see where they are on their agreed credit card debt limit, because all those expenses are "necessary."

Then in December, even though they may have paid down their debt at some times during the year, they find that they have exceeded the agreed limit, and they just have to accept it, even if interest rates have increased. They don't learn anything from this for future years, so they just repeat the cycle, never thinking about the debt limit when they spend during the year. Then one year, one member of the couple has had it, and says they need to think about the limit every month and whenever they charge something. Here we are!

On a different subject, I recently heard two interesting commercials. The first was a credit card debt commercial radio commercial which said that today many Americans just have to "accept" those high interest rates. I am thinking – really, you just have to accept credit card debt and those rates? How about all of us who lived without it before it essentially came into existence in the 1960s? Second, a Nutrisystem television commercial that claims that their food is cheaper than eating out or cooking at home after planning meals and having all that food that you are going to throw out. I thought about that claim, and how it could actually be true, given that I had just read a Wall Street Journal article on how Americans were starting to cook at home more because of inflation, and increasing restaurant costs with decreasing portions in some cases.

Then, I built a case for the claim (it must be the lawyer still in me). It might, in fact, cost more for that exact same meal in a restaurant, given the increasing prices and smaller portions, so Nutrisystem may not be talking about eating out in general, and it is probably not factoring in a tip. Also, in analyzing the cost for that exact meal in the restaurant or at home, it may be assuming that you are buying the ingredients only for that exact meal, and will not use any excess for another meal. So, for example, it is the cost of buying a head of Romaine lettuce only for that meal, not for the rest of the meals you can make.

You judge.

John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program.

As for replacement and market value, policygenius.com explains it this way, "Although the vast majority of property owners have homeowners insurance, almost half of them mistakenly think the amount of homeowners insurance they need is based on the market value of their home. Basing your home's coverage limits on its market value can lead you to being over insured and paying too much for coverage or being underinsured and not having high enough policy limits to pay out for a full rebuild in the event of a disaster."

John Ninfo

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