Why Insure Your House For More Than Its Worth?

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When most people buy a home they get a home owners insurance policy based on what their house is worth on the market. It’s called “Fair Market Value”.

Replacement Cost InsuranceBut what if you had a fire and had to completely rebuild your home? There is a good chance that with inflation, contractors would charge you a lot more than what you paid for your home -especially in today’s housing market.

Your home is the single most valuable asset you own. The biggest mistake home owners in Atlanta make is just getting the cheapest insurance they can find. You could save a lot more money in the long run by being savvy about home insurance policies and going with one that protects you the best.

There are basically three types of home owners insurance policies. Unless you have requested otherwise, you probably have the standard market value home owners insurance.

Types of Home Insurance:

Market Value (Actual Cash Value)
This type of home insurance pays for the cost to replace damaged property while factoring in depreciation amounts. This is the bare minimum and often the standard required when purchasing a house. This insurance policy is based on the fair market value of your home or, what a buyer would pay for your home in today’s market.

Replacement Cost
This home insurance policy will cover the cost of rebuilding your home, up to the amount that you choose with your insurance policy. So, if your policy is for $200,000, and you have a total loss, you’ll get $200,000 to rebuild and no more. If you have underestimated the repair and rebuilding costs -which is often the case, any remaining expenses will be on your dime.

Guaranteed or Extended Replacement Cost
This is the most coverage you can get for you home. To protect yourself against inflation and construction demand, you can buy a policy that pays more than the policy limits. An extended replacement cost policy will pay an extra 20 percent or more above the limits. This type of policy is the only one that will pay to completely rebuild your home in the case of a fire or other natural disaster.

If you live in the Atlanta suburbs like Lawrenceville or Duluth where land outside the perimeter is cheaper, the cost to rebuild your house could be higher than the cost to buy –especially if your house has pricey features, such as plaster walls, detailed woodworking and hardwood floors. Failure to cover your home at full replacement value can be a nasty shock in the case of a major loss.

Don’t wait for a major disaster to look into the details of your home insurance policy. Ask your insurance agent about your current coverage and how you can improve the protection of your home and possessions.

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