Thanks
@nereo.
What I have learned from the last 18 months post-literal-fire-(not-"FIRE")-and-gut-job:
Insurance is there to ensure that bad luck doesn't totally fuck you over. That means different things at different times. When you're young and just starting out, maybe you don't have enough saved to afford a new roof. So you pay a fraction of what a new roof would cost to the insurance company, so that they will take care of that for you if you need it/ When you're older and have more saved, you can afford a new roof, so you no longer need to pay a premium for someone else to handle that for you. OTOH, even when you're older and have a lot saved, a major fire or hurricane or earthquake can still cause way more damage than you can cover -- or, at least, without totally throwing yourself off-track. So you need insurance to protect you against that kind of major damage/total loss.
What does that mean in the real world?
1. It means you should get the highest deductible you can afford to cover. If the insurance company knows they're not on the hook for, say, hail damage to a roof, they will cut you a big price break for that.
1.a. And then save a pot of money that is designated to cover that sort of thing. If you live in a hail-prone area, you should expect hail damage at some point, and someone needs to pay to fix that. It's fine to take a big deductible, but don't then stick your fingers in your ears and sing "lalalalala" and hope it will never happen to you. Because if it would never happen to you, the insurance company wouldn't be charging you so much extra money to cover it. The higher the premium for the extra coverage, the more likely it is that that bad thing will happen.* So prepare for that.
2. It means that you
do need to make sure that the insurance is adequate to cover that worst-case scenario. $188K to rebuild?? Do you live in a yurt? I cannot imagine anywhere that would be that cheap to rebuild now -- at least, not anywhere that involves a foundation, indoor plumbing, and a roof. Unless maybe it's a condo, and all you're responsible for is stuff from the drywall in, and the condo association covers the building structure and utilities?? Do
not cheap out here, on pain of death. Nereo is right that construction costs have skyrocketed, and a rebuild is always far more expensive than starting from scratch.
By way of reference, our house was under $600K; our insurance had inflation adjusted to about $850K, and it included coverage for replacement value, so our full coverage was close to $1.2M. We ended up spending every penny of that to take the house down to the studs and rebuild it from there. It truly would have been cheaper to raze the whole damn thing.** And you know what the most amazing part is? The only fire damage was to one room in the attic, and they only had to take down and rebuild about 1/3 of the roof. First time I saw it, I thought maybe $100-150K to fix it. But the smoke and water damage killed everything else -- and anything that wasn't immediately ruined molded over in the c.3 months it took to find out what the insurance payout was going to be so we could actually get started once we knew how much we had to spend. In the end, getting the highest coverage and all of the riders*** was some of the best money I've ever spent.
The house fire is one of the hardest things I've dealt with -- not up there with my stepdad's death or the miscarriages, of course, but it is a huge time-suck to deal with, and you have a gazillion decisions to make, right when you're in the middle of dealing with all the emotions that come from losing your stuff and moving and general life upheaval (while, of course, jobs and kids and all those other obligations continue on as if nothing else has happened). I can't tell you what a relief it was to realize that I had enough insurance to pay to rebuild the house without worrying about if I could afford to do XYZ. I mean, really: I do not have words to explain the load that lifted off my shoulders.
*Remember that insurance companies make their money by accurately predicting what their future losses will be. So if they charge you a big extra premium for a lower deductible, that means they think it's pretty likely you'll experience damage that costs less than that higher deductible amount. Home insurance is also different than something like car insurance, because there's not a lot you can do to minimize your risk of those kinds of losses; whereas you can change your driving habits to at least minimize your risk of a car crash, most of the bad stuff that happens to your house is completely out of your control. That means you can arbitrage the car insurance -- take a higher deductible, then manage your own driving to minimize the risk you need to actually pay that deductibe -- but not so much for the home insurance. Ergo, it's pretty reasonable to assume that at some point, you'll need to pay whatever home insurance deductible you sign up for.
**It's a historic house, and we wanted to preserve as much character as we could. If we had less insurance, we would have had to tear it down and rebuild with a modern house without that character -- but we bought this house
because of all that character, so if we had lost that, I would have been incredibly sad and regretted it the rest of my life (and probably have spent even more of my own money over the next decade to try to add some of that back in).
***House was 120+ years old when we bought it, so we knew from the start that any damage was going to cost more than usual to fix. We just never expected to actually have it happen.
