When considering a Homeowners Insurance policy, it’s important to ask:
“What would it cost to replace your home?”
This is a very different question from “What is your home worth?”
No amount of insurance can account for the sentimental value of your home and belongings. However, it can cover the cost of replacing most items.
Homeowners Insurance Should Be Replacement Value, not Cash Value
How long have you owned your home? The longer you’ve owned it, the more likely its market value has increased.
This is one reason your Homeowners Insurance should pay more than what you paid to buy the house.
However, the Insurance Journal advises against coverage that only pays the market value of your home.
In the event your home is totally destroyed, you will want to do more than pay off your mortgage. If your mortgage is paid off, will you rebuild, or simply buy a new house?
If you decide not to rebuild, is the payout enough to cover the work needed to make the property sellable?
If the house is very old? Would asbestos or lead abatement be necessary?
This may apply even if you decide to rebuild.
Of course, the value of your house, and many of your belongings, may depreciate over time. Value Penguin says actual cash value policies look at the price someone might pay if you attempted to sell your home or belongings. Buying a five-year-old television will cost less than buying a brand new one.
Generally, replacement cost coverage takes into account what you paid for the home or item when you bought it and what it would cost to physically rebuild or replace it. This may be based on the cost of materials and any upgrades that were made. It does not, however, include the price of the lot the home was built on.
Of course, one way to be certain your policy will pay for the total replacement of your home is to get guaranteed or extended replacement cost coverage. If your home is one of many property losses at the same time, the cost of construction materials could increase. This type of Homeowners Insurance guarantees to cover any difference in the cost of the materials.
Costs of the various types of policies vary. Cash value is normally the least expensive while guaranteed replacement is the most expensive.
How do you determine what kind of policy you need?
The Keating Agency has relationships with more than two dozen companies. This enables us to help you shop for the right policy coverage at a price that meets your budget. That is the benefit of working with an independent agency.
For 50 years, the Keating Agency has been answering questions, providing sound advice, and finding the right policies for our friends and neighbors. Give us a call and learn what it’s like to work with an independent agency that focuses on our customers, not the insurance companies.
The Keating Agency is here for you.