Property coverage helps homeowners rebuild after a covered loss. The amount of coverage is determined by the type of property policy you have purchased. Generally, it is cheaper to purchase property coverage on an actual cash value basis, and replacement cost coverage is more expensive. In the event of a loss, the home insured for actual cash value will likely not be able to be re-built without significant out of pocket costs. A home insured for the replacement cost, however, would be rebuild with little to no out of pocket cost to the homeowner.
For example, Bob insures his home for actual cash value, Susan insures her home next door for replacement cost. After a wild fire destroys both of their homes, they decide to rebuild. Susan and her insurance company get to work on rebuilding her home, with all the same finishes she had originally. Bob however has to keep writing checks for the difference between the replacement cost of the finishes of his home and the actual cash value at the time of the loss.
The value of your home for insurance purposes is calculated differently than the value for resale, the assessors’ office value or even new from the builder. The value for insurance purposes is calculated based on: square footage, interior finish, type of roof, grade of kitchen and bath, bells and whistles, deck, finished basement, etc.
A homeowner’s quote should include a replacement cost estimate and this estimate should be updated after any major renovations. In fact, if you spend more than $5,000 in repairs in upgrades to your home, make sure to notify your agent! If you fail to update your agent on improvements over $5,000, you will no longer have replacement cost coverage with most companies.
This coverage extends beyond just your home itself to other structures that are also on your property – like fences, unattached garages, sheds and landscaping. Think about the time and money you have invested into your landscaping. If there was a fire, and your yard was destroyed – your homeowner’s policy has coverage available to help cover the cost of re-landscaping. If you have a large number of other structures, make sure to talk to your agent to ensure you have enough property coverage in case of a loss.