Free Home Insurance Quotes – Do You Understand Replacement Cost and Actual Cash Value?
Due to the increased awareness of the need to get affordable home insurance coverages, more and more people are doing this. It is however not enough to just have your home covered. How well do you understand the policy you have? The terms of the policy? Do you have a replacement cost or actual cash value policy? These and others are questions we should not just ask but have answers to otherwise we would only realize too late that though we had a home insurance policy, it was not as complete as we thought.
It is very important that any word or term you do not understand in your policy be well explained to you because your insurer can hide behind these ambiguous words or terms to confuse you. For many, these terms only become clear when they want to make a claim. Avoid this. Insist on having every term explained to you. In this article, we would address two terms. They are “Replacement Cost” and “Actual Cash Value”.
What we all want is to have a cover that can help us replace our homes if we should lose it to one or more perils. Having your home replaced has a lot to do with the value of your home and what the insurer says in the policy. If this is exactly what you want, your policy should offer “Guaranteed Replacement Costs”. The absence of these words should be enough to have you worried. Your policy could limit your claims to 20% increase over the insured’s dwelling amount. I would explain further.
A policy that offers guaranteed replacement cost would pay you the current amount needed to rebuild your home. I hope this is clearer. So if your home cost $150,000 when you bought or built it (of course excluding the cost of the land) and then at the time of making a claim, it would cost $200,000 to rebuild, this is what you would be paid.
If your policy offers 20% over the insured’s dwelling amount, then when you make a claim, you would get above the cost of the home. So if you bought your home $150,000 and when you were to make a claim the rebuild cost was $200,000 what you would be paid is $180,000 which is 20% more than your purchase price and $20,000 less than the actual rebuild cost. So you would have to come up with the balance of $20,000.
Is there a way to know my home’s replacement cost?
An option is to find out from your insurance agent. You may decide to get a professional builder to help you with this information. When calculating your rebuild cost, it should not include the cost of the land.
Let us try to explain the other term “Actual Cash Value”.
In Actual Cash Value, the depreciation value is subtracted from the replacement cost. Let us use the same example as above. Your home cost $150,000 when you bought it. Now 5 years later it would cost $200,000 to rebuild. If you make a claim, your insurer would calculate the depreciation value. Let’s say the depreciation value is 5% yearly. The calculation would be 5yrs multiplied by %5 multiplied by $200,000 and then divided by 100%. That is $50,000. What you would therefore get is $150,000 that is replacement cost ($200,000) minus depreciation value ($50,000).
Your insurance company considers both the replacement cost and the depreciation value. So the longer the number of years, the less you get paid. Getting a policy which provides Guaranteed Replacement Cost takes care of all these conditions.
With the number of insurance companies and policy available, you need to take some time to make sure you get adequate and affordable home insurance. This is where quotes comparison comes in very handy. Start your comparison now with free home insurance quotes. Free home insurance quotes can be gotten from quotes comparison sites and would give you a peek into what different insurers are offering and their rates.
How Do I Start Getting Quotes? Start from these links Affordable Home Insurance Quotes and Free Home Insurance Quotes Chimerenka Odimba is the publisher of several finance based sites.
