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Homeowners Insurance
3 Levels of Protection
All homeowners
insurance policies are not alike. They pay varying amounts of
coverage to replace your home and personal belongings.
The 3 most common
levels of coverage are:
-
Actual Cash
Value
Your house or property is covered for the depreciated amount
of the actual value at the time of loss.
-
Extended
Replacement Cost
Your house or property is covered up to a specified amount
or cap. For example, assume the dwelling coverage in a
policy is $100,000 and it has a $150,000 cap. If there were
a fire and it was determined at the time of loss that the
home needed to be rebuilt, then extended replacement cost
coverage might pay up to $150,000 of rebuilding costs.
-
Guaranteed
Replacement
There's no cap or maximum pay-out amount on guaranteed
replacement coverage. For example, assume a home was
originally worth $100,000. But over the years, the owner
makes unique design, decorating and style changes that make
the home worth $250,000. If the home was destroyed in a fire
guaranteed replacement coverage would enable the owner to
restore the home to its $250,000 condition. This type of
coverage may cost more, but it provides the most protection.
Most Insurance
Companies recommend Guaranteed Replacement Coverage (when
available).
Some also recommend
inflation protection. This clause or endorsement annually
adjusts your homeowners insurance policy to account for
increases in rebuilding costs, as determined by the industry's
inflation statistics, if there were a loss.
How
much insurance do you really need?
If your home and
belongings are damaged or destroyed, you don't want to be
under-insured. You don't want to pay for insurance you don't
need, either.
Obtain quotes from
several insurance companies to determine an estimate of the cost
to replace your home.
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