Understand the true meaning of "replacement cost" in your home owners insurance policy so you can choose the right level of coverage, and not a dollar extra.

 

Despite the high rates they pay, most homeowners do not realize that "replacement cost" insurance is seldom a guarantee of full replacement. This common misunderstanding can lead to a false sense of security. There are steps you need to take to make sure you are insured to value. Typical insurance policies will limit the replacement cost by relating it to the declared value at the time the policy was purchased. Not only is the coverage more encompassing with a better policy, it also usually offers more options to preferred customers.

Replacement cost usually can only be counted on to pay the declared rebuilding value, rather than the market value. And this is usually where the confusion comes from.

Several factors effect the replacement cost which will generally be much higher than what you have indicated on your policy. These include increased lumber and labor costs and new building standards.

The rebuilding cost for even a relatively new home will still be higher. And the gap widens for high end properties because of custom construction.

Is Enough Enough?

Many homeowners are under insured. They have not bought enough insurance to cover the replacement value of their home. Many are over insured because they calculated their insurance needs by including the value of the land.

Consider Your Comfort Level.

You can determine your deductible level. A higher deductible can significantly lower your monthly premiums. However, you may feel more comfortable paying higher rates just in case disaster strike. Choose the highest deductible you can afford. The one problem with this is that smaller claims such as broken windows will have to be covered by you, the homeowner.

 

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