Home Insurance Articles
Three Reasons To Consider Opting For Guaranteed Replacement Cost Coverage
2010-05-07
Everyone is aware of the importance of adequately insuring their biggest investment. There are, however, different types of home insurance coverage and it is prudent to understand the differences. There is actual cash value insurance. This covers the replacement cost of the home minus deprecation. The deprecation is a percentage for every year of the home's age. Guaranteed replacement cost coverage covers all costs to replace the home even if the cost exceeds the policy limit. In other words, there are no caps on the amount to replace the home to its original condition. This is the highest form of coverage. There are three reasons to consider opting for this superior coverage.
When deciding the limits on actual cash value coverage, it is up to the homeowner to calculate the value of the home to set the value of the policy. How can the average homeowner predict what it will cost to replace the home in 10 or 20 years? The cost of materials and labor will be probably be greater, but there is no way to predict how much greater. There are various online insurance formulas designed to assist the homeowner in determining how much coverage is needed to cover his home. These calculators are not at all thorough. There are not enough questions asked for a true assessment to be made. The value that the policy holder sets is the policy limit, and that is all that it will cover. Remember, this limit will also be reduced by deprecation. This burden is removed from the policy holder when opting for guaranteed replacement coverage. The policy will cover all of the actual replacement costs with no deprecation subtracted.
Actual cash value coverage is usually calculated by the cost to build a new home of comparable size to the one being insured. The problem is that damaged homes cost more to replace. Environmental laws require that debris from damaged buildings be sorted and disposed of in certain ways. This is not an expense in new home construction. New home contractors usually don't replace damaged homes. Specialized contractors must be hired who charge more because of demand. With guaranteed replacement cost coverage, all these additional expenses will be met.
Peace of mind is the third reason to consider this top of the line coverage. There is no need to worry about whether or not the value of your home will be covered in the event of a catastrophe. Losing a home is devastating enough without the added burden of being under-insured. Choosing an adequate amount of home insurance coverage guarantees that a homeowner will not have to pay thousands of dollars to cover expenses.