Nobody wants to consider the possibility that their home might be destroyed with a disaster or fire. But it is vital that you be ready nonetheless, and having the proper insurance can help you protect your home and provide for your family. So, the question is: do you have enough home insurance? There are some stuff you need to think about to answer that and ensure that you could return on your feet after a loss.
Is your home insured for its replacement cost?
The replacement cost of your home is different compared to market value of your home. The market value is how much someone would purchase the home and the land – it does not factor in the construction costs. Whenever a home burns to the ground because of the kitchen fire or lightning strike, there are additional costs to consider that come along with rebuilding. There's the cost of building materials and the labor from the contractors to consider, too.
As you can imagine, the costs of reconstructing a home can rise very quickly, and without the right home insurance you might wind up having to a foot a bigger a part of the bills than you had been expecting. That is a not-good surprise. It's so important that your home has enough insurance to completely rebuild it, and that means that your limit of coverage has to be set high enough. Although it would be amazing if a home-building fairy could wave a magic wand and poof a new home into existence, that is not the situation. Unfortunately. Your home insurance has to be your magical fairy.
To discover what the replacement cost of the home is, you'll have to consult a trustworthy builder and have them come out to take a look at your home. They'll look at the materials your house is built of and help you pinpoint the replacement cost. So do some research and find an established builder. Remember, the replacement cost is not the market value, the cost of the land, or the amount of a mortgage.
Are your belongings insured for their replacement cost?
Now that we've covered the structure of the home itself, let's discuss all the stuff inside the house. You will find a couple various ways you can insure your personal property. You can insure your belongings for their actual cash value (ACV) or their replacement value.
Actual cash value will reimburse you for that worth of your items at the time that the disaster occurred, which means taking depreciation into account. The components of question are probably worth less now than they were when you bought them.
Replacement cost value means that your belongings will be replaced at the current price. What this means is that you can replace them at the price they'd cost today (well, minus your deductible.)
To illustrate, let's imagine that you simply bought a new set of couches for the family room a few years ago. You've got a fire. The couches cost $2,500 when you bought them, but are only worth $1,250 at their depreciated value, meaning they were worth $1,250 when they were destroyed. But to purchase those exact couches now, it might cost $2,750. Should you had ACV insurance, you'd get the $1,250 minus your deductible. With replacement cost insurance, you'd get the full $2,750 (minus your deductible).
As you can see, to replace the belongings that you lost at today's prices, you'd need replacement cost insurance. And you will need enough insurance to replace all your belongings. This really is why taking a house inventory is important for your insurance.
Let's set some goals for home insurance limits.
Goals are important to help you succeed in life. Here are some goals that you should set when you are setting the limits on your home insurance policy to make sure that you have enough coverage to help you get through a disaster.
1. Have high enough limits to rebuild your house completely if it's destroyed with a covered disaster.
2. Have enough insurance to replace everything within the house.
3. Have enough insurance to protect your liability.
Home insurance is your means of protecting your biggest asset. You have to be sure you have enough insurance to completely rebuild your home if it were destroyed. You have to periodically review your policy and make any changes that you need to. It’s important to consider any recent remodeling and how home renovations could affect your coverage needs. Understand what your policy does and does not cover. There are, sadly, no home-rebuilding fairies to rebuild your home.
Speaking of home insurance, do you need to save on your home insurance rates? We are able to help with that! To get your free home insurance quotes, all you have to do is complete our online quote form or give us a call. One in our home insurance wizards – ahh, agents – would be pleased to help you.