When you start shopping around for home insurance, two types of policies stand out. You’ll have to choose between market value coverage (sometimes called Actual Cash Value coverage) and replacement cost coverage, and the decision you make about that will favor everything about the way your claims are processed and paid out if something terrible happens. Market Value insurance coverage protects your home up to the amount you’d reasonably be able to sell it on the open market. Replacement Cost coverage tends to be a more popular (and more highly recommended) option because it covers the replacement cost of your home if it’s damaged or destroyed by a covered peril.
Want to learn more? Read on to learn more about replacement cost insurance, how it works, and what questions to ask to make sure you get the coverage you need.
What Impacts the Cost of Replacement Coverage?
Replacement coverage typically costs more than market value coverage, but it really depends on your home, its location, and age, and a few other factors.
The Value of your Land: With replacement coverage, you wouldn’t have to re-purchase the land your home is sitting on; you’d just have to rebuild in your current location.
The Age of your Home: If you have a historic home with unique woodwork, hardwood floors, or other unique features, a replacement policy could end up costing much, much more than a cash value option, because paying to replace those features would add up quickly.
Your Policy Cap: Replacement value policies usually come with a cap: they pay for rebuilding (or replacing personal property, depending on your policy’s stipulations)–up to a point. Guaranteed replacement coverage is a type of replacement coverage that guarantees your home will be rebuilt, even if it ends up costing more than expected. The cost of a guaranteed rebuild policy is usually significantly higher than a standard replacement value policy. You could also ask about an extended cap policy; this type of policy guarantees to cover an extra 20-25% of your home’s replacement value.
Is A Market Value Policy Ever A Better Option?
Replacement value policies are usually touted as the more robust, premium coverage that everyone “ought to” choose. But it’s not right for every scenario. If you’re purchasing an older home with a lot of unique woodwork or masonry, or stunning original hardwood floors, for instance, replacement value coverage could end up costing an arm and a leg; replacing features like those in today’s market is an expensive venture. If a replacement cost policy isn’t within your budget (or replacing those unique features isn’t your priority), it might be smarter to purchase a generous market value policy instead, with replacement coverage for your personal property only.
Keep in mind that the type of coverage you purchase for your home does not necessarily extend to your personal belongings. Personal property coverage itself varies widely, and you’ll have to choose between replacement or actual cash value coverage for each.
Still have questions? We can talk you through them and help you find the answers you need. Contact us or stop by our office at Philleo Agency Insurance. We’d love to help get you the information and quotes you need to make a decision that lets you rest easy at night.