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Why You May Get Less Home Insurance Coverage

home-insurance_value

If something happens to your home, you’ll be covered for the full value, right?

Not necessarily.

If you’re like most homeowners, you know how scary that thought is. With home prices declining, the idea that your home is not covered for its full value in case of an emergency is scary.

  • What if a storm causes that tree to fall on your roof?
  • What if a tornado blows through town and your house is in its path?
  • What if your teenage daughter leaves her candles burning in her bedroom and a fire breaks out?

You could lose everything – especially if you’re not sure what your homeowner’s insurance covers.

Home Insurance Basics

Homeowner’s insurance is meant to cover you in case your house and property are damaged. The way that you are covered varies depending on the type of policy that you have.

Here are the three main types of homeowner’s insurance offered today.

  1. HO Policies: HO policies cover your house as well as any other buildings on your property, such as a shed or external garage. Usually it will also cover your personal property up to a certain percentage – usually that’s 50% – 70%.
  2. Cash Value: This policy pays you cash for the original purchase price of your home. Sounds pretty nice until the insurance company factors in the cost of depreciation for basic wear and tear. Even if your house is appraised at a higher value, you would still get the cost of your home minus depreciation.
  3. Replacement Value: This is the most common policy. It’s also the one that gives you the most peace of mind. Replacement value policies cover what it would cost to rebuild your home – not what your home was worth or what you paid for your home.

At McGrath Insurance Group, we want you to have peace of mind. With a policy that covers the replacement value, you can rest easy knowing that you’ll never have to sacrifice quality when repairing your home.

The Benefits of Replacement Value Insurance

Replacement value policies cover the like quality of structure of your home. That means that regardless of where you live, your insurance policy covers the cost of rebuilding your home.

For example, if you have a 2,400 square foot home, a replacement value insurance policy will pay you to rebuild a 2,400 square foot home. There are a few reasons why this type of coverage may cover more or less than what you paid or what you owe on your home.

  • The appraised value could change. Your home might be worth more or less than when you first bought it. The replacement value includes the increase or decrease in your appraised value.
  • Prices could have changed. If prices for a home similar to yours have gone up, your replacement value coverage will pay you for the increase in your home’s value. If prices went down, replacement value will pay you less than what you paid.
  • Inflation could change the price. Over time, your inflation could increase or decrease your home’s value. The replacement value is calculated at the time of the damage – not at the time of purchase. That means that you will get paid for a home that is comparable using today’s market as a measure.

Homeowner’s insurance is tricky and many people get burned when trying to file a claim simply because they did not reassess their policy often enough.

If you’re not sure about your coverage, it is important that you speak to your insurance agent. Getting a policy review is crucial to keeping you fully protected.