The Difference is Actual Cash Value and Replacement Cost

The main determining factor is whether your policy is a replacement cost value policy or an actual cash value policy. If you have an actual cash value policy, it will not. Actual cash value is also known as the fair market value. Fair market value is basically the amount that a a buyer would pay for your home.

Replacement Cost Home Owners Insurance Policy


With a replacement cost policy, the chances that you will be able to completely rebuild your home are better. But, there are many types of replacement cost policies, so you need to be careful to purchase a replacement cost policy that best meets your needs. One example is a guaranteed replacement cost policy. This type of policy is the only one that will pay to completely rebuild your home. Other types of replacement cost policies will pay your policy limits, plus a certain percentage above those limits. Don't forget about building code upgrades coverage. Cities and counties periodically change their building codes. If you don't have this coverage, and you need to change the structure of your home to keep it current with building codes then your insurance company may not pay for changes.

Your Home Owners Policy Maintenance

Your agent, broker, or insurer can help you find the best home owners limit to rebuild your home. You will need to update that limit periodically to maintain a limit that reflects current construction costs.

It is a good idea to ask your agent, broker, or insurer if they automatically review or increase limits on a regular basis or if they offer an automatic inflation guard option that increases limits according to current inflation information.

Understanding Your Home Owners Policy

Regardless of what you and your agent choose you still need to read your policy and your renewal declarations carefully. Whenever you are unclear about your policy, you need to contact your agent, broker, or company and ask them to assist you in clarifying the information and get the clarification in writing. Don't wait until after a loss to realize that you did not have the right coverage.

Look for More than Just Cheap Home Owners Insurance

When shopping for a home owners insurance policy you may not end up with the best coverage if you only shop by comparing prices and not by comparing coverage. Your home is one of the most important purchases you will make. Take the time to understand your insurance before you purchase it. It is one of the best decisions you make for yourself and your family.