Insuring the Structure of Your Home
There are generally three ways to insure your home: Replacement Cost, Guaranteed Replacement Cost, and Actual Cash Value.
Replacement Cost – This form of loss settlement will repair or replace the damaged property without a reduction for depreciation, up to the coverage amount you've purchased.
Guaranteed Replacement Cost – This form of loss settlement will pay the full cost of repairing or replacing damaged property without a reduction for depreciation and without a dollar limit. This protects you against a sudden increase in construction costs due to a shortage of labor or building materials. This coverage is not available in all states and some companies limit the coverage to 120 percent of the cost of rebuilding your home.
Actual Cash Value – This loss settlement is equal to the replacement value of the damaged property less an allowance for depreciation. With most insurance companies, unless your policy specifies loss settlement according to replacement value, the settlement is usually based on actual cash value.
Here are a few ways you can make sure you have enough insurance protection:
- Find out the building rates in your area by consulting with your local builders' association or town officials. You can get a rough estimate of the amount required to rebuild your home by multiplying your building rates per square foot by the total square footage of your house. Some of the factors that determine the cost to rebuild your home are:
- Local construction costs
- Square footage of the structure
- Type of exterior wall construction (frame, masonry or veneer)
- Style of the house (ranch, colonial, and so on)
- Number of bathrooms and other rooms
- Type of roof
- Attached garages, fireplaces, exterior trim and other special features like arched windows
- Custom features
- Know the true costs of rebuilding your home and make sure you are properly insured.
- Check the coverage amounts of your policy each year against rising local building costs. Many insurance companies will provide an inflation protection endorsement to your policy. This automatically adjusts the dwelling limit (Coverage A) when you renew your policy to reflect current construction costs in your area. Some companies use a fixed percentage every year – make sure your insurance matches the value of your home.
- Check the latest building codes and ordinances in your town and community. Building codes require structures to be constructed to modern standards. If your home is severely damaged, you might have to rebuild it to comply with the new standards requiring a change in design or building materials. Most homeowners policies will not cover these extra expenses. This may even apply to policies with guaranteed replacement cost. Many insurance companies offer an endorsement that pays a specified amount toward these costs.
- If you make improvements to your home, make sure to increase the coverage limits of your policy to reflect new cost of rebuilding your home.
Special Consideration for Older Homes
Many older homes have special features or custom components that may be difficult to replace in today's market. If you don't have sufficient insurance, your insurance company may only pay a portion of the cost of replacing or repairing damaged items.
Take a few minutes to get a free, no obligation homeowners insurance quote, and see just how affordable our rates can be.
