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Home Insurance FAQ: Purchase Price vs. Replacement Cost

Posted on by cvargas
couple looking up home insurance information in their kitchen

Here at Vargas & Vargas Insurance, our goal as licensed insurance agents is to provide competitive homeowners insurance policies to Massachusetts families. Part of our job is educating first-time homebuyers and investors about how homeowners insurance works. 

This article is going to address a home’s purchase price versus replacement cost as it pertains to insurance. We’re also going to answer two specific questions we get all the time:

  1. Why am I insuring a home for replacement cost instead of the purchase price?
  2. What is “dwelling replacement cost,” and how does it work?

Why Am I Insuring a Home for the Replacement Cost, Not the Purchase Price?

Homeowners insurance is designed to help you replace a home and its contents from the ground up in the event of a loss.

Imagine your home burns down to the ground. Homeowners insurance is there to rebuild that home completely and replace your belongings. Replacement cost is our best estimate of what it will take to rebuild that home, in your neighborhood, per square foot.

However, it’s important to know that the purchase price of a home is not equal to replacement cost. Purchase price includes the land the dwelling is sitting on, for example, which doesn’t need to be replaced after a fire.

What Is Dwelling Replacement Cost, and How Does It Work?

We figure every dwelling’s replacement cost individually with a formula: square footage by replacement price (sqft x rp). Replacement price depends on factors like:

  • Your location
  • Current labor costs
  • The expense of materials like wood, brick, carpet, and roofing

As a result, dwelling replacement cost changes from time to time. We also consider:

  • Special enhancements like moldings, architectural finishes, columns and more
  • Fireplaces and stonework
  • Systems like central heat and air, central vacuuming, and sprinkler systems
  • Anything else special or unique about your home

In many cases (but not all), a home’s replacement cost is higher than the purchase price. This is good news for you as a buyer. If there is a total loss, you will come out financially ahead if you have a mortgage.

If you’re buying a home for the first time, congratulations! It’s a tremendous accomplishment. The staff at Vargas & Vargas Insurance is ready to help you get the homeowner’s insurance you need. Reach out to us today at 617-409-0329 for a homeowner’s insurance quote, and check out our blog for more great Massachusetts insurance topics.

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Should I Buy Earthquake Coverage?

Posted on by cvargas

At Vargas & Vargas Insurance, our job is to provide the right insurance policies to protect your investment into your home and to protect your family and belongings. Today, we’re talking about earthquake insurance. Before we get any farther, we should point out that most dwelling policies don’t include earthquake coverage. In other words, if a huge 8.1-magnitude earthquake were to rumble through Massachusetts and toppled your home to rubble, you would not be covered with a standard homeowner’s policy.

mother and daughter inside a kitchen

Earthquake coverage is a rider that can be added to any home insurance policy. It’s worth the money if you ever experience a significant loss, and it’s certainly worth the peace of mind.

Does Massachusetts Experience Earthquakes?

Yes! According to the Northeast States Emergency Consortium (NESEC), the state has felt 408 earthquakes over the last 450 years. That’s almost one per year on average. Earthquakes occurring in surrounding states, and even as far as Quebec, Canada, have been felt in Massachusetts, too. 

Even though our earthquake history in recent years isn’t as scary as in other states like California, Massachusetts homeowners are always at risk of earthquake loss. Preparing for one now can protect your home later.

On Home Valuations and Earthquake Deductibles

Earthquake insurance is written based on the replacement cost of your home, not the purchase price or property tax valuation. In other words, your company will insure your home based on what it will cost to build a new home from the ground up, just like through your general homeowner’s policy.

However, deductibles work differently with earthquake insurance. You can choose your deductible to be 5%, 10%, 15%, 20%, or 25%. It’s vital that you understand these deductibles as they relate to a loss.

For example, let’s say your home replacement cost is $250,000. A 10% deductible is $25,000. Earthquake insurance won’t come into play for a small loss. If a small earthquake occurs and breaks all your dishes and some windows, the damage won’t be more than your deductible of $25,000. However, if your entire home were to turn to a pile of rubble, you’d be entitled to a check for $225,000.

Ultimately, the choice to insure your home against earthquake damage is entirely up to you. It’s an affordable addition to any homeowner policy, but it’s important to choose the right coverage for your specific property. Reach out to a licensed insurance agent at Vargas & Vargas Insurance today to learn more.

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How to Keep Your Home Safe From Burglary While on Vacation

Posted on by cvargas
family packing for a vacation

When it’s time to pack up your suitcase and head out of a town for some much-needed R&R, the last thing you want to think about is your home’s security. In reality, however, burglars prey on houses that are obviously left unattended for extended periods of time. Taking a few simple steps before you leave town can ensure that your home and property remains intact while you are away, both from trespassers and home disasters.

Be Mindful on Social Media

You’d be surprised what people take note of on social media. Don’t publicize specifics about going out of town before or during your trip. Likewise, if you receive expensive gifts over the holidays and are soon leaving town, don’t post them on your account. Burglars look for easy targets like these.

Keep Valuables out of Sight

Close your blinds and curtains before you leave, so outsiders can’t see what’s inside. This won’t just prevent burglars from spotting valuables, such as electronics. It will also make it more difficult for them to view additional points of entry to break into.

Forward Mail and Packages

If you are expecting packages from online shopping or know your mailbox will be overflowing before your return, take the time to temporarily forward your mail to your work or a friend’s house. Packages left unattended on the front porch are not only at risk of being stolen. They are a sure sign that no one is home to retrieve them.

Have a Neighbor Watch Your Home

Ask a trusted neighbor or friend to stop by your home a few times throughout your trip. They can turn on the lights, move your car, or simply ensure that everything looks secure. Giving the impression that someone has been home is an effective deterrent to thieves.

Use Light Sensors and Timers

Installing timers and motion sensors on indoor and outdoor lights is an effective security strategy. It will make sure that anyone lurking around your yard or house is seen, as well as indicate to any potential burglars that someone might be home. 

Don’t let your vacation end on a sour note by coming home to an empty or ransacked house. With these simple steps, you can reduce the risks of theft while you’re away. However, even the most cautious vacationers can experience a burglary or home invasion. Talk to our team today about the right home insurance coverage to give you more peace of mind.

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Why You Should Buy Flood Insurance for Your Massachusetts Home

Posted on by cvargas

Floods happen far more often than most people realize. In the United States, flooding is a factor in 90 percent of natural disasters. Unfortunately, home insurance policies do not cover flood-related losses. That’s a fact that some homeowners only find out after they’ve experienced property loss from a flood. At Vargas & Vargas Insurance, we’re here to help you protect your property before a flood.

mother and child gardening in the backyard of their Massachusetts home

Why You Need Flood Insurance in Massachusetts

Although properties on the Massachusetts coast have a higher flood risk, flood insurance isn’t just for people who live there. No matter what part of Massachusetts your house or condo is located in, you need flood insurance.

The National Flood Insurance Program (NFIP) has a popular adage that goes: “Where it can rain, it can flood.” It’s another way of saying every home is at risk of flooding. While your home may have a lower or higher risk than other properties, a home with no risk of a flood doesn’t exist.

In fact, flood insurance claims for properties in low-risk areas are commonplace. FEMA reports more than 1 in 5 NFIP claims are associated with properties that aren’t in the high-risk zones. 

If your home is in a high-risk flood plain, you need to know what that risk level means in practical terms. According to the Massachusetts Division of Insurance, that risk level means you have a 26 percent risk of a flood damaging your property over the course of a 30-year mortgage.

Consider the town of Northampton in western Massachusetts. Many years ago, mid-March warming caused winter’s ice and snow to melt so rapidly that the Connecticut River overflowed to the extent that Northampton flooded. Today, Northampton officials are concerned that climate change could cause the town to flood again. Town officials are currently working diligently to prevent a repeat of that historic flooding. Homeowners should protect themselves for the risk of a flood in any season.

How to Get Flood Insurance

If climate change or another weather event brings flooding to your community, it’s important to be prepared. Flood insurance policies typically take 30 days to go into effect. Therefore, now is a good time to contact your local independent insurance agent to discuss your options for flood insurance coverage.  

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Home Insurance for Room Additions

Posted on by agentinsure

It is a good time to get a home insurance review when you begin planning a room addition to the home. Let your agent at Vargas & Vargas Insurance, serving Dorchester, MA and the surrounding area, know what you are planning so that there are no gaps in the home insurance coverage.

Your agent can also review the insurance coverage that is carried by the contractor you select to do the work. This is a good double-check to make sure the contractor is carrying adequate insurance and the insurance policies are active.

You want to think about replacement cost coverage if you do not already have it. The cost of construction keeps going up. If you only insure the home for its purchased value, you may not have enough money to rebuild the home if everything is lost. The vast majority of homes are underinsured. Don’t make this mistake. Having to come up with a large amount of money, when you are already experiencing a major disaster, is very difficult.

Home insurance, during the construction of the room addition, can be adjusted to cover the progress of the job. Make sure there is a discussion of where and how any building materials will be stored and who is responsible if they get stolen.

The contractor’s insurance should cover any workers; however, your home insurance needs to protect your family and any guests that come to visit. There are extras risks when a construction project is underway to those who are on the job site. In this case, the job site will be your home.

Contact your agent at Vargas & Vargas Insurance in Dorchester, MA to have a home insurance review and to make plans for the necessary home insurance upgrades that will provide adequate protection for your new room addition as well as your home.

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Warning for Jewelry Owners: How to Avoid Fake Gem Lab Reports

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Near the end of 2019, the Accredited Gemologists Association (AGA) issued an alert to consumers and its industry. The AGA had learned fake gem lab reports are circulating that feature the unauthorized use of AGA’s logo. AGA’s notice is similar to an announcement the Asian Institute of Gemological Sciences issued in 2018, when that organization became aware of fraudulent lab reports bearing its logo. The following tips can help jewelry owners and consumers avoid fake gem lab reports.

couple looking at watches in a jewelry store

1. An “AGA Lab Report” Is Always a Fake

Any report supposedly issued by the Accredited Gemologists Association or bears AGA’s logo is always a fraudulent report. The AGA is not a lab. The organization never issues gem lab reports.

2. Look Carefully at the Lab’s Name

Frequently, fraudulent labs try to confuse the public by using a name that’s very similar to the name of a respected laboratory. According to Jewelry Insurance Issues, a newsletter for the insurance industry, fake labs are using names such as GIE and GLA to mimic the name of the well-known and highly-respected GIA.

3. Research the Lab Report Number

Gem lab report numbers are checked easily online. Jewelry owners can enter the report number on the websites of trustworthy gem labs like the Gemological Institute of America (GIA), Gem Certification and Assurance Lab, and American Gem Society Lab. Researching the report number may reveal conclusions such as:

  • No such report number exists.
  • The number is associated with a report that describes a different gem.
  • Your report is authentic.

4. Learn Other Signs of a Fake Gem Lab Report

Reputable labs do not assign a value to the gem or carry a retailer’s logo. If either appears on the gem report, the report has not been issued by a reliable, independent gem lab. 

The Takeaway

A gem lab report from an unreliable or nonexistent gem lab is completely worthless. Jewelry owners need to seek the services of a qualified gemologist who also has insurance appraisal training. The AGA maintains an online directory of accredited gemologists that can be sorted by state.

Your jewelry needs to be appraised to be properly insured at the right value. When you purchase new jewelry or receive jewelry as a gift, you should always notify your local independent insurance agent.

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These Home Improvement Projects Can Raise and Lower Your Insurance Rates

Posted on by cvargas

If you’re updating your home, you may have to make updates to your home insurance policy, as well. When you increase the value of your home, such as by adding square footage or doing a major bathroom renovation, you need to make sure you don’t end up underinsured. Your current policy was designed to cover the cost of rebuilding, and it needs to reflect your home’s current value accurately.

Also, some home improvement projects can actually lower your premiums if they make you less likely to file a claim. By not upgrading your policy, you could miss out on these substantial savings.

Women setting the alarm on her home security system

Take a look at some home upgrades that will require modifying your insurance policy.

Home Improvement Projects That Increase the Value of Your Home

If you purchased your policy when you had laminate countertops and decided to upgrade to marble and high-end appliances, you added tens of thousands of dollars to your home’s value. But, if you don’t inform your insurance company, you’re left in a very vulnerable position if the worst happens and you need to file a claim. Purchasing more coverage protects the value of your home and ensures you get an adequate payout to replace any covered damage. The same is true for adding livable square footage by renovating a basement or building an addition.

If you add a pool, updating your insurance becomes crucial: swimming pools are a potential hazard. To have peace of mind, consider adding liability insurance included in your policy.

Upgrades That Can Lower Your Premiums

Your home insurance policy isn’t just calculated based on your home’s value. It also considers how likely you are to file a claim. Getting a new roof can help you qualify for a lower rate, especially if you have an older home. Roof damage from rain and snow is one of the biggest reasons that homeowners file a claim, and your roof is now better able to withstand extreme weather.

Upgrades to your security, such as a burglar alarm, are another potential investment that can lower your rate. Modernizing older heating, plumbing, or electrical systems can result in a discount if there’s less risk of fire or water damage.  

At Vargas & Vargas Insurance, we’ll be glad to give you detailed guidance about the right policy for your current home’s value.   

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The First-Time Homebuyer’s Quick Guide to Finding Insurance

Posted on by cvargas

If you are purchasing your first home through a home loan, you will need to show proof of home insurance to your lenders before they can finalize the loan.

First-time homebuyers moving into their home

Since lenders do hold a lien on your property until you finish paying off your loan, having clients under home insurance is in their best interest. This can help protect the equity they have in your home in case of damages, such as electrical hazards.

While you might not always need to have insurance if you are paying your home through an unsecured line of credit or with cash, it pays to invest in it. Home insurance helps keep your home protected. When shopping for insurance, comparing prices and policies makes it easy to pick an insurance policy that covers your home optimally and is affordable enough.

Here are some insights on finding home insurance:

1. Pay Attention to the Limits

Home insurance coverage is divided into categories. Typically, any personal belongings you own will be covered under Coverage C of your insurance (personal property), and it pays to ensure that the limit will be enough to cater for what you own. However, some items, such as jewelry, will fall under a category containing a sub-limit, which tends to be set by your insurance company. If the sub-limit isn’t enough for such valuables, you have to add a rider for protection.

On the other hand, coverage E (liability) will protect your liability in case someone gets injured by accident in your property. When picking insurance, ensure that the liability limit awarded is enough to cover all your assets. Since most insurance policies set their liability limits at half a million dollars, you should consider buying umbrella insurance for extra coverage if this limit will not be enough for your property.

2. Understand Your Deductibles

Deductibles in insurance are the amount of cash you will pay out of pocket to cover any damages. When setting your deductible, choose a figure that is right into your budget. Unlike car insurance that fixes the deductible to a specific amount, home insurance deductibles might vary.

Some policies wills set your deductible at a percentage of your dwelling coverage. Others tend to have a split deductible system, whereby most claims will work under a set dollar deductible amount, while some claims (such as wind damage and other perils) may work under a percentage.

Also, some carriers might include a wind and storm deductible — or a named storm deductible — as a percentage of your dwelling coverage. To save on insurance costs, you can always increase your deductible. But it might be wise to save an amount equal to the deductible in a savings account for a rainy day.

3. Beware Of Exclusions

In some states, insurance agencies might exclude certain things from your policy. Under most policies, landslides, mudflows, and even earthquakes might be excluded. Flooding, in particular, isn’t always covered. For instance, in Massachusetts, earthquakes and floods are excluded. Even though you do not live in an earthquake or flood-prone area, it might be wise to purchase the extra coverage to eliminate the financial risks.  If you think you need coverage for an excluded peril, talk to your agency about purchasing the ad hoc coverage.

The future is not set in stone. It can be very easy for a disaster to destroy your most prized investment: your home. Home insurance ensures that you can protect your investments. If you want to buy home insurance or get insights on how to save on insurance, feel free to contact us.

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What Costs Are Part of Your Monthly House Payment?

Posted on by cvargas

If you’ve been looking at houses, you’ve probably seen real estate websites where the estimated monthly payment is shown. This is a great feature for breaking down the cost of a home that you will pay off in 15 or 30 years, and it can help you stay within your budget.

Woman smiling as she reviews her house payment at home
Monthly house payments include your mortgage payment, a portion of your property taxes, and your homeowners insurance premium.

However, it doesn’t always show the whole picture. The estimated payment only factors in the cost of the loan for a traditional 30-year mortgage at the current interest rate. It does not include the other costs that are factored into a standard monthly house payment. Two additional costs include:

  1. Property taxes
  2. Homeowners insurance

Property Taxes

Just like everything else in life, having property is also taxed. When you take out a mortgage loan, the property taxes are calculated into your monthly loan payment and put into an escrow account. When your taxes become due, your mortgage company makes the payment for you.

The percentage of taxes you owe depends on where your property is located, and this can be checked prior to purchasing a home. 

Although it may seem like a negative, having your taxes included in your monthly payment is actually a great way to stay organized. It takes away the burden of paying property taxes in one lump sum. Also, you don’t have to worry about whether you made the payment or not. (And if you love your home, you definitely don’t want to forget paying your property taxes!)

Homeowners Insurance

The other cost that goes into your monthly mortgage payment is homeowners insurance. It is standard for the insurance cost to be part of your mortgage payments, and mortgage lenders will often not loan you money if you do not have it. If anything should happen to your property, the lenders want to make sure that they can recover their costs. However, having the right home insurance policy isn’t just for them — it’s for you. You’ll want to be protected in case your home is damaged, and the right homeowners insurance policy can give you peace of mind.

You get to pick out the home insurance policy that works for you, and you should have it ready at the time of your closing. Here at Vargas and Vargas Insurance, we can guide you through the process. Contact us today for more information.

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What’s the Difference Between Condo Insurance and Home Insurance?

Posted on by cvargas

Insurance is vital, regardless of whether you own a home or a condo. It can help offset damages to your property, so you don’t have to worry about paying for those damages out of your pocket.

happy young couple buying a condo and talking to the property manager
Protect your new condo by learning how condo insurance is different from home insurance.

However, the type of insurance you choose will dictate how any damages to your property will be handled. While both home and condo insurance might cover your property, there are some subtle differences between the two. Here is how home and condo insurance differ:

Condo Insurance

Condo insurance covers any non-communal property that you use as a property owner. Ideally, it should cover certain ‘walls-in’ losses, replacements, and repairs, as well as your personal property. For any damages that happen outside your unit walls, the condo association’s master insurance policy should offset them. But you should always verify the details before you purchase a condo or change your insurance policy.

Condo insurance also comes with loss assessment coverage. In situations where the condo association levies condo damage fees on all unit owners, this will cover the ad hoc fees. Condo associations will typically do this if the cost of offsetting damages to the communal assets is more than what their master insurance policy covers.

Home Insurance

Traditional home insurance tends to be for single-family dwellings, and it can be as simple or complex as mortgage lenders allow it to be. It should cover your entire home structure, including construction materials and other permanent elements. Most insurance policies also cover any personal property that is valued at 50% or greater of the insured home itself. The insurance can also cover other structures within the vicinity, such as detached garages and sheds.

Filing Claims

Filing claims is typically easy for home insurance, as it can be made directly with the insurers. On the flip side, there are some complexities in filing claims through condo insurance, and the specifics will depend on the situation.

For instance, the condo association insurance should take care of water damages as long as they are as a result of burst pipes outside your condo walls. Your condo insurance will, however, take care of damages arising from burst kitchen sink pipes, as they are within the unit’s walls.

Insurance policies tend to have rules that property owners have to adhere to for an easy claiming process. Regardless of the insurance policy you have, it pays to follow these rules. Be sure to read through the fine print of your insurance policy documents to choose the right coverage. If you have any questions about condo insurance or you’re looking for a new policy, we’re here to help. Contact us online or at 617-298-0655 to talk to our team.

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