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Insurance
Homeowners Insurance
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1 of 5 Insurance
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What would it cost to rebuild your home if it were destroyed?
Most people don’t like to imagine such scenarios but it is
an important question to consider when making decisions about
insurance. Without
sufficient coverage, your insurance company may not be obligated to
pay more than only a portion of the cost of replacing or repairing
damaged items. What is
the best way to insure your home and what kind of coverage do you
need?
Replacement Cost
pays the policyholder the cost of replacing the damaged property
without deductions for depreciation, but is limited to a maximum
dollar amount.
Guaranteed Replacement
Cost also pays the cost of replacing damaged property without
deductions for depreciation but does not have a dollar limit.
However, this coverage is not available in all states.
Some companies allow coverage for up to 120% of the cost of
rebuilding your home, offering a buffer of protection against such
things as a sudden increase in construction costs.
Actual Cash Value
gives to the policyholder an amount equal to the replacement value
of damaged property minus its depreciation. Unless the homeowner’s
policy specifies that the property is covered for its replacement
value, the coverage is for actual cash value.
To quickly estimate the dollar amount it will take to rebuild
your home, simply multiply the local building costs (found by
consulting your local builders association or real estate appraiser)
per square foot by the property’s total square footage.
Other factors such as exterior wall construction and
materials, number of bathrooms and other rooms, and attachments such
as garages and fireplaces are taken into consideration.
You should make an annual check of your insurance
policy and its applicability toward rising local building costs.
An Inflation Guard
Clause included in your policy automatically adjusts the
dwelling limit of your policy to current construction costs. It is also wise to increase the limit of your policy should
you make renovations to your home.
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