When you buy a homeowners’ insurance policy, you might look at different options like personal liability protection, property theft, and flood coverage. But how much did you think about protecting your home itself? Not all policies are created equally. Keep reading to learn more.
Market Value Coverage
One way of insuring your home is to insure it based on its market value. If you select this option, your Coverage A limit — the main limit that covers your home’s structure — will be based on what you could sell your home for when you purchase your policy.
Market value coverage provides a simple way of estimating your insurance needs because there is a lot of data on home prices. However, some of the market value is based on things like the desirability of your land or what school district you’re in. You don’t need insurance coverage for those types of things because you’ll still own the same piece of property even if your home is destroyed.
Replacement Cost Coverage
Replacement cost coverage can provide a more exact measurement of the cost to repair or replace your home. Your insurance agent has a replacement cost estimator tool they can use to figure out what it would cost to rebuild your home and the coverage you need. However, this coverage is usually based on current construction costs at the time you buy your policy. Construction costs can vary greatly from year to year based on changes in materials prices and the labor market.
Because replacement cost doesn’t include the added value items that market price does, it might result in a lower calculated needed Coverage A limit and a lower policy premium. However, the risk is that if prices rise, you may have to pay out of pocket if you wish to use the same quality materials that you originally had.
Inflation Guard Endorsement
Many homeowners’ insurance policies have fixed dollar limits no matter how the limits were originally calculated. As you well know, the cost of living usually goes up every year, and this includes construction costs.
If you never review your policy limits on the policy you’ve had for years, it may no longer provide enough coverage to fully repair or rebuild your home. An inflation guard endorsement provides an inflation adjustment to your policy limits to avoid this problem.
Extended Replacement Cost Endorsement
An extended replacement cost endorsement provides additional coverage to cover gaps in your Coverage A amount. This might be because you estimate that your true costs would be above the market value or replacement cost you calculated when selecting your Coverage A amount. You may also have expenses that aren’t included in your primary coverage.
Choosing an extended coverage option could help ensure that your out of pocket expenses are reduced or eliminated if something happens to your home.
To find out more about these options and whether you have the right coverage, talk to Jarosch Insurance. We help homeowners make sure their homes are protected.