Home Insurance Articles

What A Replacement Cost Guarantee Means For Home Insurance Coverage

2010-08-18

While going through the process of purchasing a house, you undoubtedly come across the issue of home insurance. This type of insurance will cover your big new purchase and all the belongings you move into or purchase for it in the future. In the cases of theft, fire and other mishaps with the exception of flooding, which requires a separate policy, your home insurance offers you the peace of mind in knowing that you can replace any items lost or damaged. There are many insurance terms utilized within the industry that you will want to familiarize yourself with in order to choose the best policy for your needs. One of the more important terms you will hear in your search for an adequate policy is replacement cost guarantee.

Replacement cost guarantee is the insurance company's promise to replace any items lost or damaged if any of the covered events occur. Covered events could include fire, burglary, water damage due to pipes bursting and many other things. For example, if a fire destroys the living room furniture set, your home insurance will give you the funds to replace that furniture set with brand new, comparable quality furniture. The opposite of a replacement cost guarantee is a market value replacement. In a market value replacement, the agent would take into consideration the price of your living room set when it was new, how long you have had it and how much you could sell it for today on the market. This amount is how much the company gives you to find a new living room set.

Home insurance covers the actual physical house. If, for instance, your house is completely destroyed in a fire, the replacement cost guarantee will give you a check to cover the cost of rebuilding your house with the exact materials and in the exact manner as it was originally built. For historic homes, this home insurance coverage can be quite expensive. If you are particularly attached to your historic home, replacement cost guarantee coverage will ensure that your home is restored to its former glory with every ornate detail. Replacement cost guarantee mitigates your loss should, through some unfortunate event, your home becomes damaged. How it compares to market value replacement is arguable. If the value of the house had increased prior to the damage, or the house value appreciated, the amount you receive from home insurance could be greater than the amount you receive with replacement cost guarantee. Both coverage stipulations, though, are adequate. In each case, you should receive enough money to buy a new home or build a home comparable to your old one.