We all know that our home insurance coverage is so very important so a lot of us are getting our homes covered. Just getting your home covered is not enough. Do you have a full understanding of the coverage you are getting? The terms of the policy? The difference between replacement cost and actual cash value? These and others are questions we should not just ask but have answers to otherwise we would only realize too late that though we had a home insurance policy, it was not as complete as we thought.
Understanding some terms in our policy has become very important since many insurance companies hide behind these terms to surprise customers. Many people sadly only come to understand some terms when they are making a claim. This is wrong. Make sure you ask about any term you do not understand. let us look at replacement cost and actual cash value.
What we all want is to have a cover that can help us replace our homes if we should lose it to one or more perils. Having your home replaced has a lot to do with the value of your home and what the insurer says in the policy. To make it very simple, make sure that in your policy, your insurer offers "Guaranteed replacement cost". This is a magic phrase that if you do not have in your policy, you should begin to ask questions. Your policy could limit your claims to 20% increase over the insured's dwelling amount. let me try to break these down.
A policy that offers guaranteed replacement cost would pay you the current amount needed to rebuild your home. I guess this is simple enough. So if your home cost $150,000 when you bought or built it (of course excluding the cost of the land) and then at the time of making a claim, it would cost $200,000 to rebuild, this is what you be paid.
Payments of 20% over the insured's dwelling amount simply means that what you would be paid upon making a claim is 20% more than what you bought the property which I hope you know is not the rebuild cost. So if you bought your home $150,000 and when you were to make a claim the rebuild cost was $200,000 what you would be paid is $180,000 which is 20% more than your purchase price and $20,000 less than the actual rebuild cost. So you would have to come up with the balance of $20,000.
A question now arises. How do I get to know the replacement cost of my property?
An insurance agent can help out with this. You can also just simply find out from builders or any one with enough building knowledge how much it would cost to rebuild your home. Your rebuild cost does not include the cost of the land on which the building stands.
Let us try to explain the other term "Actual Cash Value"
When we talk about actual cash value, we are talking about the replacement cost minus depreciation value. Using the same example we used above, if your home cost $150,000 when you bought it 5 years ago and now that you are making a claim it would cost $200,000 to rebuild, your insurer would calculate the value of depreciation. For example, if depreciation is put at 5% per year, your depreciation value would be 5 multiplied by 5 (5yrs and 5%) multiplied by $200,000 divided by 100 (100%) = $50,000. Your insurer would then pay you $50,000 less the current rebuild cost.
Your insurer acknowledges the replacement cost but also puts into consideration the rate of depreciation. So the longer the number of years, the less you get paid. The answer is simply to go for "Guaranteed Replacement Cost" and be sure that you would get your exact rebuild cost.
There are so many insurance companies out there and you need to be careful to shop for the one that would offer you the best coverage and at the most affordable price. This is where quotes comparison comes in very handy. Get free home insurance quotes now for comparison. These free home insurance quotes which you can get from quotes comparison sites would help you compare different insurers policies, rates and terms before committing to any of them.
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