Homeowners’ insurance is a security blanket that protects you from financial loss if something happens to your home. Many people buy a policy based on the premium price, not looking too deeply into what it covers. There are three levels of insurance to choose from. It’s up to you to know what each one covers and how effective it will be for your needs. While price is important, it means nothing if the policy is insufficient to meet your needs. Read on to understand how different levels of homeowners’ insurance work.
Different Homeowners’ Insurance Levels
Like car insurance, homeowners’ insurance has different levels of coverage. Although the levels are structured differently, there are similarities to consider. The goal is to research each type of coverage to understand what level of coverage will best suit your needs. Take the time to review your needs and compare them with what each policy offers. Once you have the coverage you need, peace of mind will follow.
Actual Cash Value
Actual cash value is what your home and possessions are valued at after deducting the depreciation. This is often referred to as market value. It is not the amount you paid for an item or what you will have to pay to replace them. Depending on the current market, the cost to replace your home could be much higher than its actual cash value. Understanding how the market fluctuates and determining actual cash value will give you a good idea of what you may receive if your home is damaged.
The replacement cost of your policy will cover your property’s full actual cash value without any depreciation or deductions due to use or general wear and tear. A replacement cost policy will provide you with the funds to rebuild or repair your home to its original value. This may fall short of what it will cost to replace it if inflation has caused the price of both materials and labor to rise substantially. Again, this goes back to the economic market and its stability. The market is what controls the cost of replacing your property.
Guaranteed/Extended Replacement Cost/Value
A guaranteed/extended replacement cost/value policy is the most comprehensive of all homeowners’ insurance policies. This type of policy considers the cost of inflation and will rebuild your home no matter what the cost. It will also allow for a 25% to 50% increase in the amount over the limits listed in your policy. It’s important to know what you expect your policy to do. If you want your home replaced to its current condition and value, a guaranteed/extended replacement cost/value policy is the one you should choose. Making home improvements could change the replacement cost and you should contact your insurance agent to review and ensure proper coverage. Don’t assume the extended replacement cost is sufficient.
Before purchasing a homeowners’ policy, you must understand the available levels and what they can do for you. Contact our insurance experts at Scavone Insurance Agency Center if you want to learn more about homeowners’ insurance. We can explain each level and allow you to ask questions so that you are fully informed. Don’t put your family’s financial security at risk! Call and schedule an evaluation today so we can help you get the homeowners’ insurance cover you need to feel secure and protected.