Homeowners Insurance: Replacement Cost vs Purchase Price
Featuring Carla Boardman Smalling
Carla Boardman Smalling joins us for episode four of Got You Covered. Carla is Vice President and owner of the agency and is our shining star personal insurance agent based in Burlington. We speak with her about the ins-and-outs of figuring home insurance premiums, why your purchase price is different from replacement costs of your property, and the best practices in quoting your policy.
Intro – Ryan (Host): Welcome to Got You Covered presented by Hickok Boardman Insurance Group, the podcast where we unpack the countless ways in which insurance affects our lives and so you can properly manage your unique risk.
Ryan: Welcome back everybody to another episode of Got You Covered presented by Hickok and Boardman Insurance Group. Got another great episode for you today. We’re talking about some really interesting concepts when it comes to personal insurance. We’ve had some other episodes related to commercial insurance, but today we’re talking more about something that affects each and every one of us in some way.
COVID has really affected supply chains this past year, and with that the cost of building materials has certainly gone up and anybody who knows a contractor or is a contractor definitely knows. A sheet of plywood is no longer 30 bucks, or whatever it might have been, now it’s closer to 75. And you can imagine when building a home that just really inflates the cost.
So today we’re going to talk a little bit about the difference between, from a homeowners perspective, the difference in purchase price versus the assessed value of your home, and then replacement cost when it comes down to insurance. And I’m bringing in probably one of the most intelligent people I know when it comes to personal insurance. We’re bringing in today, Carla Boardman Smalling, she’s a VP at Hickok Boardman and a client advisor in personal insurance. Carla, welcome to the podcast.
Carla: Thank you Ryan thank you for that vote of confidence I appreciate it
Ryan: No problem, no problem. I I’ve always looked up to you, when I was new brand new to insurance – I’m still new to insurance but it’s just interesting how supportive, you know, you’ve always been from a personal lines education perspective. So, it’s good for me to have you on the podcast today.
Carla: Always happy to help. I feel like that’s probably my number one thing is always trying to, at least, help people and just, you know, give information. Love it.
Ryan: So, before we get into today’s theme of, you know, replacement cost versus purchase price and all that juicy stuff, I’m curious how did you even get into insurance in the first place?
Carla: Well, I took a little bit of a, you know, roundabout way to get here. Being raised in this family, the Boardman family and my father being you know, in the insurance with his two brothers, as well as his father. You know, people always thought that maybe we talked about insurance all the time at the dinner table. That did not happen. And you know, given my age, which is 64, you know, back in the 70s when I was trying to decide what I want to do for you know, college it wasn’t really encouraged for women to come into the family business at all. So, back then your choices – yeah, really, not at all. Not even, not even a mention – but, you know, back then it was like, “Well do you want to be a teacher? Do you want to be maybe a nurse?”
And so, I thought, “Well you know what, I’ve always been interested in the medical field.” So, I went to school for dental hygiene. And I became a dental hygienist. An
Carla: No kidding!
Carla: I, you know, it was a really intense program and, you know, you had to sit through different, you know, licensing board exams and so forth. And I got licensed, and I practiced for about two years and then thought, this is really not what I want to do with my life. You know, I just, it was it was not my idea. I just did not want to do it. I liked the people interaction, but I thought you know what, I need to do something else.
And so, I kind of just worked at various places and then got an opportunity to work for a company called Garden Way, which made the big, wheeled carts down in Charlotte, Vermont. And I found my, you know, found my people, found what I love to do. It was you know, I did a lot of operations, I did a lot of traffic, were you trying to, you know, get the carts out to various people, obviously, across the country. And that was really interesting. And I did that for about six or seven years.
And then a spin off of that, where some people that started a company called Gardener Supply out of the Intervale.
Ryan: Yes, very familiar with that.
Carla: Really, that, I just loved it. I really did. I did that for another 10 years, you know, had the girls, and I have to say that when Ken – when I was working at Garden Way back in 1979, that’s when I met my husband. He worked for a trucking company, and we use have to talk to each other all the time. So I’m very, very grateful to Garden Way for introducing me to my husband. But then after you know, when Gardener Supply started, it was really interesting and fun, because every day was new. You’re trying to set this business up, we were trying to do catalogs and come up with a layout. And I worked in the purchasing department.
But then, after about 10 years, everything was running pretty smoothly. It was no new startups, and I kind of got a little bored. So, I finally said to my father, what do you think about me joining insurance? And he’s like, come on down. So, that’s, that’s exactly what I did. And you know, I would work during the day, I would study at night. And then I took my exam. I don’t know about six or eight weeks later, and I passed. And, unfortunately, my father had a stroke right after that. So, we never got a chance to work together. But I joined the business in July of 1992. So I’ve been here 29 years, and I love it. I love what I do, because I love dealing with the people and just learning about everybody’s different exposures and how we can help them. And that’s really what it boils down. I think whether I was doing dental hygiene, or I was doing, you know, working with Gardeners Supply and Garden Way, it was about helping, and that’s what I figured I’m good at. And I like to do it.
Ryan: It’s, it’s, that’s a cool story. And I think that’s what a lot of people I’ve talked to in the insurance industry share. It’s like this common element of, “I really just wanted to help people in a meaningful way.” Doing it. And you know, I wanted to make an impact. At least for me, I remember the first time I considered the idea of insurance. I was like, “Oh, you gotta’ be kidding me.”
Carla: Well, yeah, I think what it used to be, maybe, likened to used ‘car salesmen’ at one point. You know, not positive, but we’re all very, I think, very technical and highly trained. And I think once people, once you give it a chance to understand the business, it’s pretty, it’s pretty amazing.
Ryan: Absolutely. So, here’s one of the concepts that I am always explaining from a commercial insurance perspective, to my clients and prospects. But I think from a homeowner’s perspective, it couldn’t even be, it could, it’s an even more important concept for people to understand. And it’s this concept of how your purchase price, your assessed value of the home, and the replacement cost that you insure it for, are all often three different numbers.
Ryan: So I’m curious, what is your quick explanation to someone when they say, well, “Carla, why am I insuring my home for this replacement cost? But I bought it for this?”
Carla: That is probably the number one question that we get on a daily basis. And I will say, in today’s world, certainly the market right now, people are paying, you know, 10-20% over asking value, and then they don’t understand why we’re not insuring it for that. So, what it really is, is the base, you have to understand is: Insurance companies do not look at what somebody can sell their house for, they don’t look at what it can be appraised for. It’s all based on: What is it going to cost to rebuild that structure minus your land value.
So, the two different examples I give, and I think it’s pretty relevant in Vermont – people can grasp this pretty easily – is: Somebody buys a million-dollar property on the lake, and they’re gonna pay a million dollars for it, but when they come to me get insurance, it might only be a two bedroom ranch. And so I might only insure that, you know, say it’s a 1500 square foot home, that might only be insured for 300 or 325,000, because that’s what it would cost to rebuild that structure. Your land value, especially on the lake, is very high. And people put a premium on that. But the land is always going to be there if the house burns to the ground. So that’s, that’s what you have to understand.
And then the reverse of that, or the converse of that. You know, I always use Hyde Park, because I have a friend that lives up there. So, in the Northeast Kingdom in Vermont, he bought a 3000 square foot Victorian, and he paid $99,000 for it. But when we go to insure it, and this was 20 years ago, we had to insure it for close to four or 450,000, almost 500,000. I mean, it had all the original moldings, beautiful parquet floors, it was exquisite. But because of the market, in the way it is, that doesn’t have the same value say is, you know, down here in the Burlington area. So, we are we are always having that conversation. And even now, just understanding that like, I think you were saying before, building materials and labor have really increased, I think that’s going to be an aberration or a little blip on the screen. But you still have to account for it now, because that’s what it would cost to get somebody in. And I actually thought a woman that’s been waiting for her appliances since February. So, that is a problem and just to get somebody out there to do the work is a problem, too.
Ryan: Wow. So, tell me, at least from the homeowner replacement cost, insurance world perspective, what is, what is like, the quick list, the quick punch list of data and things that are used to create sort of a replacement cost value for somebody?
Carla: So, the first thing I do when somebody calls me and says, Hey, I’d like a quote, then I kind of go through my list of: Okay, you know, “Where is it located?” you know, “How many square feet is it?” “How many square feet above grade is finished and how much below?” Because those are kind of two different numbers. And for the going kind of – you know, just a quick and easy way to come up with a calculation – you know, if it’s a standard construction, we’re starting at about $200, or $225 a square foot above, and anywhere between 65 and 95 for below. But if somebody’s got a home, say in the hill section of Burlington, that was built in the late 1800s, that could very easily be $400 a square foot just depending on the quality of materials.
And then we ask them, you know, there’s other liability issues that go with it. It’s not necessarily from you know, a building point of view. But when somebody wants a homeowner’s quote, you have to know, you know, “How far is it from a fire station?” You know, if it’s more than five miles, it’s going to take the fire department a while to get there. So, they’re going to build the rate in accordingly. And, you know, “Do you have a pool? Do you know, “What kind of dogs do you have in your household?” Because some dogs and some breeds of dogs are on the prohibited list. You know, it varies by company. But I kind of look at like, “Okay, what is the structure? What kind of quality? You know, is it a deluxe kitchen? Is it a designer kitchen? Is it a standard builder grade kitchen? Same with bathrooms? What kind of floors do you have? Are they hardwood? Are they marble? So from there, you, you build what would be the rebuilding cost of the house. And I bet, you know, we’re probably within 5 to 10%, you know, most often, just based on what people are telling me.
And then, thank goodness for the internet, because you can get lots of photos, right? And then they’ll say to them, well, you neglected to tell me that you have a full-fledged riding stable to the left of your house. That’s part of the property. And so, you have to have that conversation, as well. Like, what, what are you actually going to do? Is this going to be your primary home versus secondary home? But that’s the place to start. How big is the house? Where is it, how far from a fire station, and then you start asking additional questions and building your quote from there.
Ryan: Great information. I know, just because of COVID, And knowing that supply costs are increased, at the moment, I went back and looked at our homeowner’s policy and just found, just from a quick exercise of taking my square footage by, you know, a 200-ish per square foot replacement cost that, you know, when I first insured it, I was probably okay. But now looking at it, um, I had to, I just increased the limit on my house a bit. And you know, that’s an exercise that a lot of people listening could probably consider doing,
Carla: I would totally agree. And sometimes people will forget to call us as their agent to say, you know, “I just put an addition on,” or “I just gutted my whole kitchen and put in very high end appliances, very high end marble countertops,” or you know, courts, whatever the case may be. And the one thing I’ll tell you, on a homeowner’s policy, if I write the house today for 100,000, say that’s the actual rebuilding cost, when it renews a year from now, it doesn’t stay at that 100,000. There’s an inflation guard that is built in. So there’s usually between 3 or 4%. So, when it renews next year, it’s not going to be at 100, it will probably be 103-104,000. But the other thing that comes with these homeowners policies, and most of them have them and most of them offer this, and we always include it when offered, is it’s called a Replacement Cost Guarantee. So, if I insure the home for 100,000, and it burns to the ground, most companies give at least an additional 25%. So you’d have 125, 25% available to rebuild, as long as you’ve insured the house to value. If somebody said “I should have insured it for 80. But I’m only going to insure it for 40.” Then there is – they can invoke a clause that says we won’t pay you that full amount because you did not insure the home properly.
Carla: But that’s very rare in today’s world because we wouldn’t accept that. We would say no, you have to insure it for the full value.
Ryan: Yep. Yep. And, and you know, that’s, that’s part of having an agent that really understands how it all works, understands which carriers are going to offer the best program for that particular type of home. Maybe you have a woodstove. Maybe you don’t, right –
Ryan: That’s really where you come in.
Carla: You know your carriers, you know what they will accept. And you know, you know, somebody whose home was built in the 1800s, like mine, is there are going to be – some carriers are going to be better at insuring those than others because they have some endorsements that understand that half the house still has, you know, old plaster walls. And so you want to be able to know that and that’s our job. And my job, as an agent, is to really understand what the person is looking for in the exposure and being able to share with them, you know, this is, this is why we’re doing this for you because we want to protect you when we want to, you know, give you the best possible coverage that’s available for you at the time. It’s really not about price. It’s really about coverage first, and then, within that, if all things are equal, who’s going to give you, you know, a reasonable and competitive premium for that?
Ryan: Exactly. That’s perfect. Yeah. Well, Carla, do you have any final words for the listeners? Any recommendations? Or any final thoughts you’d like to share? I’m putting you on the spot a little bit.
Carla: That’s okay no, I believe me, I have no problem speaking and talking. I really, I always say to people, you know, look at your agent, and you know, another person in your, kind of, group of trusted people. Whether it’s your accountant, your lawyer, you know, because your agent, if we don’t have the information, then we can’t really help you and try to protect you. And that’s really what insurance is, is trying to protect your investments. whether it’s your home, you know, it’s your, it’s your liability. It’s all of those things combined. And I always tell people, there’s no incentive to over insure, but you can be at a disadvantage, certainly, if you under insure. And so just have those conversations with your agents.
And I’ll put a plug in for an independent agency, because we don’t just represent one company, we’ve got 15. And so within those 15 companies, we have some really good options for people and until they go out and shop, they were sometimes shocked, going, “You mean I paid all that money for the last 10 years with this company when I could have been getting better coverage at a better premium?” And so, they’re kind of our best ambassadors because they go out and say you need to give Hickok Boardman a call because they’ve got some really good options for you. And that’s what it is. It’s options and coverages.
Ryan: Fantastic. Well, thanks again for joining us today. Carla has been a great conversation and thanks for listening everybody. This has been another episode of got you covered presented by Hickok Boardman Insurance Group. We will see you next time.