Article 5 of 9 in How to Purchase Home Insurance
When you buy home insurance, you will need to decide how you want your policy to pay you in the event of a claim. There are two ways that your insurance company will pay for the damage under your policy: home insurance replacement cost or actual cash value. The difference between the two can be significant, especially in the event of a total loss, so you need to look closely at each and find the best home insurance policy for your needs.
Home Insurance: Replacement Cost vs. Actual Cash Value
When you are looking at home insurance replacement cost versus actual cash value, you need to understand what each one will do for you. The difference between the two applies when your insurance carrier pays out a home insurance claim:
Home insurance replacement cost on your house will ensure that in the event of a total loss, you will be paid the cost to rebuild the home at today's price. Actual cash value will pay you the cash value of the home at the time it was damaged or destroyed, regardless if it costs more to rebuild. Some home insurance policies have what is called guaranteed replacement cost of your home itself. It will pay for the replacement of the home even if it exceeds the coverage limits. However, to get this home replacement cost coverage you must insure your home for the amount the replacement cost estimation tool calculates it will cost to rebuild, which means you may need to buy more coverage than you planned.
TIP: To get home insurance replacement cost for your personal property or your home, some insurance companies require you purchase a replacement cost rider. Some of the best homeowner insurance policies have replacement cost built in, so keep that in mind as you shop
How to Buy the Best Home Insurance
Judging by the payout schedule, it would seem like home insurance replacement cost is the way to go with your home insurance coverage. However, there are some other things to consider before you buy your policy:
In order to make your decision, you need to consider all the price and risk factors that can help you determine whether or not a replacement cost policy is worth the extra premium payment. You should also take time to shop and compare home insurance quotes and find the right policy for your needs and budget.
TIP: If you have an extremely tight budget, the basic coverage of the homeowners insurance policy at actual cash value will be cheaper. However, replacement cost gives you the total protection you need, especially in the event of large losses.
Buying home insurance is made easier with quotes to compare. To get a free quote on your home insurance policy, click here to visit the Free Advice quote center today!