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Tell Mel: There’s a reason Citizens sets insurance standards

Melanie Payne

Gary Maue paid $84,000 for his house in Cape Coral. And that’s all he thought he should have to insure it for.

Citizens Property Insurance Corporation – Maue’s carrier – won’t let him do it. Maue must insure the home for what it would cost to rebuild.

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"When the market was booming, maybe the replacement value was up there, but builders aren’t charging that anymore," Maue said.

Maue doesn’t have a mortgage on the house, and if it were up to him, he said, he’d insure the house for $50,000.

"Why not let me insure it for what I want to insure it for?" he asked.

Citizens requires the house to be insured for the cost to rebuild, said John Kuczwanski, spokesman for Citizens Insurance.

"We have a tool the agents use to calculate replacement costs based on the square footage and ZIP code," Kuczwanski said. The data is updated quarterly, he said.

And although a 1,800- square-foot, brand new house in a development costs $100,000, that doesn’t mean rebuilding Maue’s same house on his lot would be as inexpensive.

Customers who disagree with Citizens’ rebuilding estimate can get an appraisal, Kuczwanski said. If the appraisal comes in lower, the premium would be adjusted.

A replacement-cost appraisal would run about $400, and with Maue’s home, that investment may not be worth the drop in premium.

But Scott Johnson, executive vice president of the Florida Association of Insurance Agents, said Maue is missing the point of replacement value insurance and why it’s the best way to insure a house.

It’s unlikely the coverage would be used for a total loss, if the whole house needs to be replaced. Claims for things such as a pipe breaking or a fire that destroys the kitchen are more common.

So let’s say the cost to replace a burned-out kitchen is $15,000. Because Maue didn’t insure for replacement value, the claim would be paid in proportion to his insurance on the house. Therefore, if he only insured for half of the replacement value, he’d get only a proportional amount. And he likely couldn’t replace his kitchen for that amount. Or even if he could, it wouldn’t match the kitchen he lost.

"Insurance pays (claims) to achieve a result," Johnson said. It’s not to give you money back, it’s to get things back to the way they had been before.

I understand and sympathize with Maue. Who wants to pay for $188,000 of insurance on an $84,000 home? But I think his insurance company is right.

Unless the home is destroyed and the insurance company is going to cash you out so you can just buy a new one, you need replacement value insurance. Sure, the premium is higher, but without it the consumer is going to lose. And I think Citizens is protecting its policyholders with this requirement.