Having home insurance is an important part of owning a house and protecting your property. Replacement cost coverage home insurance might be just what you’re looking for in home insurance. Knowing that, you might ask: what are the benefits of replacement cost coverage home insurance?
Replacement cost home insurance coverage replaces the items in your home as well as the actual building and it’s something you should at least look into when trying to decide what kind of coverage you need.
Keep reading to learn the benefits of a replacement cost coverage policy.
Replacement Cost Homeowners Insurance
One of the two most common types of home insurance policies, replacement cost insurance coverage will give you peace of mind if something does happen to your home and the property inside.
With this type of insurance coverage, you’ll receive a payout to cover the cost of replacing items in your home with the exact item or a similar one in today’s market. This differs from another popular insurance called actual cash value where items are replaced at their depreciated value.
Benefits Of Replacement Cost Coverage Home Insurance
The benefits of replacement cost homeowners insurance are very appealing when people are looking at coverage options.
Replace Your Items With New Ones
When it comes to replacing your items following a disaster, this type of insurance policy is a much better option. With replacement cost coverage home insurance, you’ll be made whole again without having to dip into savings. If you have little or no savings, you might find it difficult to replace your items if you don’t have this type of coverage. While the premiums for these policies are going to be higher than those of an actual cash value policy, the safety net to replace your home and/or items in your home is going to be worth it.
Replacement cost coverage is going to give you peace of mind if you have higher quality or high priced items in your home.
Replacement Cost Coverage Means No Depreciation
Replacement cost coverage policies won’t take depreciation into consideration when it comes to replacing your home or the possessions inside.
As an example, if you have a $1,000 TV, your replacement cost homeowners insurance policy will provide you with $1,000 to buy the same TV (or one similar to it if that specific one is no longer available).
If your home is actually damaged, you will receive payment for that replacement as well. If your roof is damaged, your policy may pay to replace the roof. With actual cash value, if your roof is years old, you’ll only receive a fraction of what it might cost for a new roof because your insurer is only paying for what the roof is worth today.
How Will You Be Paid?
With these policies, you’re likely not going to be given a check upfront to pay for the new items you’re buying. Often, insurance companies will provide you with two separate payments when you have replacement cost coverage.
The first check will be for the actual cash value of the item or items. You can then go out and purchase replacements and once you’re able to prove that you did make these purchases, you can then receive the final payment. Usually, you’re able to submit the expenses for your purchases as you make them rather than at one time.
Check with your insurance agent and review your policy for the exact process.
Replacement Cost Of Homes And Buildings On Your Property
When you’re looking at these types of policies, but sure to understand that replacement cost of your home or other buildings on the property isn’t the same as what you paid. Instead, the replacement cost is centered around the cost of materials and the labor required when it comes to rebuilding. It also has nothing to do with the actual land.
Labor and cost of materials is a more stable number where the value of your home can fluctuate with the market and other factors of that kind.
You might have some items that no matter what type of coverage you have, just can’t be replaced. You might have family heirlooms, artwork, sports memorabilia and antiques under your roof that you just can’t replace if something were to happen. Talk to your financial advisor or insurance agent for options including a separate floater or a rider for these specific items.
When it comes to replacement cost coverage, the benefits are going to be appealing for many homeowners. With the ability to replace items in your home or the actual building with new items of similar value, you can be made whole without having to dip too far into savings. While the premiums are going to be a bit higher, the peace of mind can be well worth the added expense.
Be sure to talk with your insurance agent for more information about these policies. Policies will differ between companies, making it important to read over the policy before purchasing.