Whether you’re buying a new home, or just looking at your insurance options to find a company that more effectively meets your needs, you need something more than just a great website and friendly smiles. You need actual information that helps you choose the best policy to protect your home and property. We’re here to help. Read on to find out how to decide what amount of coverage is right to protect your home.
It’s not as complicated as it might seem. You’re not just trying to pick a number out of the air here. Instead, you have two general options: you can purchase replacement cost insurance or market value insurance coverage for the structure of your home. The option you choose determines how much you’ll be reimbursed if your home is completely destroyed by a risk that your policy covers.
Option 1: Replacement Cost Coverage
This option ensures that if your home is completely destroyed (by a peril that your insurance covers, of course), you’ll receive enough money to rebuild an equal-valued house from the ground up. Because the cost of materials and new construction can vary so greatly, sometimes a replacement cost is estimated at more than you paid for your home. That’s par for the course—especially among somewhat older homes, which would be more expensive to rebuild than to buy outright.
Option 2: Market Value Coverage
Usually, market value coverage is lower than replacement cost coverage. It generally comes with lower premiums as well, though your situation could vary. This type of coverage ensures that if your home is destroyed by a covered peril, you’ll receive a check for the amount your home would have cost on the market at that time—so theoretically you could go purchase another home of equal value.
Those are the two big options. Both are estimated based on an appraisal and inspection process that happens when you purchase your policy. But there are a few other questions to keep in mind when you’re insurance shopping.
How much insurance does your mortgage provider require?
Many lenders require buyers to purchase at least enough insurance to cover the full amount of the mortgage they’re receiving.
If you’re buying a new (or new-to-you) home, will you be expected to pay for a year of insurance in advance?
Usually, the answer is yes. You’ll need to go to closing prepared with the insurance policy you’ve chosen and the money to pay for your first full year of coverage. Usually it’s added to an escrow account covering taxes and home insurance, and it’s added to the cost of your mortgage on a month-by-month basis.
What about the property inside your home?
Deciding between replacement and market value coverage has no bearing on the actual contents of your home; that’s a different question entirely. When it comes to making sure the personal property inside your home is covered, you’ll have a few other decisions to make about your reimbursement options, and you’ll need to have a general inventory on hand of the most valuable items in your home.
Still have questions? We’d love to answer them to the best of our ability. Feel free to contact us at Insurance Innovations, Inc, and we’ll connect you with a knowledgeable agent who’ll take the time to talk to you about your situation, answer your questions, and get you a quote (or quotes) for the type of policy and coverage you need. Because having the right information–and a team on your side–makes all the difference.