Insurance
Basics [1] [2] [3]
[4] [5]
Insuring
the Structure of Your Home.
There
are generally three ways to insure your home:
Replacement
Cost - This form of loss settlement will repair or replace the damaged
property without a reduction for depreciation, up to the coverage amount
you've purchased.
Guaranteed
Replacement Cost - This form of loss settlement will pay the full cost
of repairing or replacing damaged property without a reduction for depreciation
and without a dollar limit. This protects you against a sudden increase
in construction costs due to a shortage of labor or building materials.
This coverage is not available in all states and some companies limit
the coverage to 120 percent of the cost of rebuilding your home.
Actual
Cash Value - This loss settlement is equal to the replacement value
of the damaged property less an allowance for depreciation. With most
insurance companies, unless your policy specifies loss settlement according
to replacement value, the settlement is usually based on actual cash
value.
Here are
a few ways you can make sure you have enough insurance protection:
- Find
out the building rates in your area by consulting with your local
builders' association or town officials. You can get a rough estimate
of the amount required to rebuild your home by multiplying your building
rates per square foot by the total square footage of your house.
Some of
the factors that determine the cost to rebuild your home are:
- Local
construction costs
- Square
footage of the structure
- Type
of exterior wall construction (frame, masonry or veneer)
- Style
of the house (ranch, colonial, etc.)
- Number
of bathrooms and other rooms
- Type
of roof
- Attached
garages, fireplaces, exterior trim and other special features like
arched windows.
- Custom
features
- Know
the true costs of rebuilding your home and make sure you are properly
insured.
- Check
the coverage amounts of your policy each year against rising local
building costs. Many insurance companies will provide an inflation
protection endorsement to your policy. This automatically adjusts
the dwelling limit (Coverage A) when you renew your policy to reflect
current construction costs in your area. Some companies use a fixed
percentage every year -- make sure your insurance matches the value
of your home.
- Check
the latest building codes and ordinances in your town and community.
Building codes require structures to be constructed to modern standards.
If your home is severely damaged, you might have to rebuild it to
comply with the new standards requiring a change in design or building
materials. Most homeowners policies will not cover these extra expenses.
This may even apply to policies with guaranteed replacement cost.
Many insurance companies offer an endorsement that pays a specified
amount toward these costs.
- If you
make improvements to your home make sure you increase the coverage
limits of your policy to reflect new cost of rebuilding your home.
Special
Consideration for Older Homes
Many older homes have special features or custom components that may
be difficult to replace in today's market. If you don't have sufficient
insurance, your insurance company may only pay a portion of the cost
of replacing or repairing damaged items.
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