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, though, 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.
Reason No. 1: Coverage That Matches the Value of Your Home
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 building materials and labor increases annually due to inflation, and if your coverage isn’t current that could leave you drastically underinsured. There are various online insurance formulas designed to assist the homeowner in determining how much coverage is needed to cover his or her home, but they are not thorough. The value that the policy holder sets is the policy limit, and that is all that it will cover. This burden is removed from the policy holder when opting for guaranteed replacement coverage.
Reason No. 2: Comprehensive Coverage
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 are met. Guaranteed replacement cost coverage provides full protection from these types of hidden costs that you may not consider if you have to rebuild your home. However, this type of policy is more expensive than most. It can cost more than $1,000 per year, depending on the price of your home and your location. Yet the financial security it provides makes it a worthwhile investment.
Reason No. 3: Peace of Mind
Peace of mind is the third reason you should consider this type of coverage. There is no need to worry about whether 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 underinsured. If you think this type of coverage isn’t for you, then make sure to talk to your insurance agent about updating your policy every year so you have adequate coverage. This may not cover all of the costs associated with rebuilding your home, but it will reduce the amount of money that comes out of your pocket.