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Former President Obama and freshly inaugurated Trump will be settling into their new digs this week. While the Obama family has given up a cushy 46,800 square feet, Trump will be spreading out in an extra 22,000. But, still, there’s no place like home. Right? Right. So, this week, we’d like to get you thinking about your home. Regardless of size, after a long day at the office, chaotic carpool duties, a grueling workout or maybe even an extended vacation, there is a place in your house that you crave. Whether it’s that nook in your couch, your side of the bed or the bathtub, it is your personal sanctuary and it’s worth protecting. Homeowners insurance protects your home – your refuge – and its contents from damage or theft. However, it is important to know that homeowners insurance options are not created equal and there are key decisions that you must make to be sure that your coverage is adequate.
Primarily, you must choose the method by which your insurance company will pay you for a loss. Of course, the more they are expected to pay for a claim, the more you can expect to pay in premiums. Generally, your options will be:
Actual Cash Value (ACV): The insurer will pay you an amount equal to the value of damaged or stolen property, less depreciation (wear and tear). Since this method considers depreciation, the amount you are likely to receive is reduced. In other words, ACV is the amount you would receive if you tried to sell the property or item to someone else. If you are insured for Actual Cash Value, we recommend shopping for more comprehensive coverage, such as Replacement Cost or Extended Replacement Cost, described below.
Replacement Cost: Preferred over ACV, this method does not take depreciation into account. With it, you will be reimbursed for the amount it will cost to rebuild your home or replace an item of similar quality, up to the limit of coverage in your policy.
Extended Replacement Cost: As the name suggests, this form of coverage works in a manner similar to Replacement Cost, with a little extra. With Extended Replacement Cost, the insurance company may provide for an additional 25%-50% of your coverage limit to rebuild your home or replace an item of similar quality. It’s important to note that this additional protection requires you to keep the insurance company informed of any property improvements to ensure that your stated policy limit is adequate.
Be careful in comparing the coverage on your home to its current market value. In certain areas, land is a very large part of a property’s market value and, if your home were to burn down, you wouldn’t need to replace the land. Considering improvements, changes in building codes, increases in construction costs and other factors in rebuilding, there really is no correlation between current market value and costs to rebuild. So, work with your agent or contact homebuilders to inquire about the average construction cost per square foot in your area, at least annually.
Also, know that standard coverage limits available for certain high-value items like jewelry, furs, collectibles and fine art may not be sufficient to cover their actual value. Scheduling these items on a personal property rider will allow you to secure additional coverage at an additional cost. It’s a great idea to take photos or a video of these special items. A picture is worth 1,000 words.
