Like most insurance policies, a homeowner policy has many different elements. Most standard policies include coverage for:
- Dwelling (i.e. your home)
- Other structures (garages, sheds, fences, etc.)
- Personal property
- Loss of use (cost of additional housing and living expenses if you have to move out temporarily while home is being restored)
- Liability insurance: (helps protect your assets and cover your defense costs in the event of a lawsuit because you or your family are responsible for causing injuries or damage to other people or their property)
- Additional home coverages (additional coverages vary by insurance company; they may include valuable items, contents replacement, coverage for water backup, etc.)
The value placed on the dwelling in an insurance policy is (a) of high interest to homeowners and (b) sometimes confusing due to different definitions of “value”. Here are the common terms:
Replacement value: The replacement cost of a home is the amount it will cost you to rebuild the home with material of like kind and quality — without the cost of the land and without any deduction for depreciation.
Actual cash value: the replacement cost, less the amount for depreciation.
Assessed value: That’s the number that you find on your tax bill. Remember, that includes not only the structures on your property, but the land value as well.
Market value: That is how much a home would sell for under normal conditions. (i.e., It’s an educated guess.)
Insurance companies use REPLACEMENT VALUE when determining insurance coverage. That’s the reason our agents ask you so many questions about what you have in your home because the goal is to provide protection that would allow you to rebuild a comparable home.
For many years, insurance companies commonly required that you insure to 80% of the replacement value of the home but more recently, companies are requiring that you insure to 90 or 100% of the replacement value. That makes good sense because in the event of a loss, the last thing you want to learn is that you have inadequate coverage, making the loss all the more devastating.
Many insurance companies also offer additional limits on your home coverage as well as an inflation guard endorsement, which will increase the “replacement value” of the property as construction costs rise. Your Cushman Insurance Group agent can explain your options!
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