How
many times have you looked at your Homeowner's policy and thought that the
coverage on your house was way too high? And that you could never sell your
house for that amount.
With
the housing market being what it is, people think that the coverage on their
homes should reflect the market value -- but you couldn't be more wrong. The
difference between market value and replacement cost is that market value
reflects what a home can be sold for but replacement cost is what a home can be
re-built for. Do you see the difference?
With
the cost of services and materials, you want to make sure that you have enough
coverage to rebuild your home in case of a loss. Some may say that they would
never rebuild their house the way it is now, but let's consider the problems
with that theory if you have a loss and the home is not completely destroyed.
For example, say your home is insured for $160,000 but it
should be insured for $200,000 and you have a kitchen fire that
resulted in $50,000 worth of damage. The fact is, the insurance company will
only pay you $40,000, less your deductible. That means that you’ll have to
write a check for that remaining $10,000 in order to get your kitchen back in
working order.
The
reason behind this is in the numbers.
Because you have only insured your home for 80% of its value, you will
only receive payment for 80% of the loss.
If you have questions about replacement cost, contact your insurance
agent.
