Keys to Properly Insuring Your Home

Your home’s real estate market value is not the same as the current construction rebuild cost. Most policies provide replacement cost coverage, which pays to repair or replace damage with materials of similar kind and like quality up to the limit of your policy. Therefore, being insured at 100% of the estimated replacement cost is essential.

While many home policies adjust automatically to keep pace with increasing construction costs, completing a home replacement cost estimator every five years or any time you make significant alterations, additions, or upgrades is wise. Other highly recommended coverage options to consider are:

• Extended Replacement Cost coverage – This endorsement provides 25% or more coverage over your limits, which could be needed if labor and materials costs fluctuate drastically.
• Ordinance or Law coverage – If your home is severely damaged, you may be required to rebuild or update it to meet new (often stricter) building codes. This coverage pays a specific amount toward these costs.

What will it cost to replace ALL your possessions?

Generally, personal possessions are covered for up to 50% of the insurance limit on the building structure. You may extend coverage to 70% by purchasing a package endorsement. Be sure the amount is enough for all your possessions.

Also, purchase replacement cost coverage for your personal property rather than an actual cash value policy, which only pays the replacement cost minus depreciation. For example, if a fire destroys a 10-year-old television, a replacement cost policy pays to replace the TV with a comparable new one. An actual cash policy only pays a small fraction of the replacement cost because it considers the ten years of use. You want to be able to replace everything without having to worry about depreciation.