How Does Your Home Insurance Pay?
Home insurance is designed to do more than just protect your home. In different situations, your home insurance will pay to replace your belongings, pay for you to stay somewhere else while your home is being repaired, and also pay for lawsuits when you injure someone. As you can see, home insurance is a very important agreement you will make with your insurer. But when you buy your home insurance, there are several factors you should consider so that you know exactly how you are covered in the event of a loss. Here are some factors many policyholders simply do not consider that should be on the top of the list:
Does Your Policy Offer Extended Replacement Cost Cover For Your Dwelling?
Your dwelling coverage will pay to repair or rebuild your home if it is damaged due to a covered loss. Some of the of the many covered losses to your dwelling include:
- Civil riot
- Rain, Hail, or Snow
- Falling objects
You might know how much coverage you have selected to pay for the repair or rebuilding of your home but do you know what happens when you file a claim years later? After all, the cost to rebuild your home will change over time as the cost of materials and the cost of labor change. So, 5 years after building your policy you might not have sufficient coverage to pay to rebuild your home. This is why extended replacement cost is so important. Policy that include this buffer will provide 10 to 25 percent more coverage above the limit stated on the policy to pay for rebuilding efforts if the limits on the policy are not enough. With this rider on your home insurance policy, you will have peace of mind in knowing that inflation will be covered.
How Will the Insurer Value Your Personal Property?
Another coverage included in a home insurance contract is referred to as contents cover. Contents cover, which may also be called personal property, will pay to replace your belongings when they are damaged beyond repair or stolen. But how exactly will your property be valued if you were to lose everything in a fire? This is an important question you will need to ask your agent or your broker when you are determining which policy is right for you. There are two different types of valuations that claims adjusters can use to determine the value of your belongings when paying claims: replacement cost and actual cash value.
Actual Cash Value: When valuations are based on Actual Cash Value, the insurer will take the value of the item and then subtract depreciation based on the item's age. This means that when you own a television that is 5 years old, the claims adjuster will cut you a check for the current value of that television. You will be responsible for paying the difference when you buy a new television for your home.
Replacement Cost: When valuations are based on replacement cost, the claims adjuster will review the specifications of the item and will determine how much it will cost to replace the item at the time of the loss. This means that depreciation is not considered when the claim is being paid. If you do not want to pay to replace items out-of-pocket, you should look for a policy with replacement cost cover.
As you can see, knowing how your home insurance will pay before you have a loss can save you a lot of trouble in the future. Review your policy, find out how your insurance pays, and add the right riders if your coverage is not sufficient.