Insurance Basics 
  
Insuring the Structure of Your Home.
There are generally three ways to insure your home:
Replacement Cost - This form of loss settlement will repair or
replace the damaged property without a reduction for depreciation,
up to the coverage amount you've purchased.
Guaranteed Replacement Cost - This form of loss settlement will
pay the full cost of repairing or replacing damaged property without
a reduction for depreciation and without a dollar limit. This protects
you against a sudden increase in construction costs due to a shortage
of labor or building materials. This coverage is not available in
all states and some companies limit the coverage to 120 percent
of the cost of rebuilding your home.
Actual Cash Value - This loss settlement is equal to the replacement
value of the damaged property less an allowance for depreciation.
With most insurance companies, unless your policy specifies loss
settlement according to replacement value, the settlement is usually
based on actual cash value.
Here are a few ways you can make sure you have enough insurance
Find out the building rates in your area by consulting with your
local builders' association or town officials. You can get a rough
estimate of the amount required to rebuild your home by multiplying
your building rates per square foot by the total square footage
of your house.
Some of the factors that determine the cost to rebuild your home
- Local construction costs
- Square footage of the structure
- Type of exterior wall construction (frame, masonry or veneer)
- Style of the house (ranch, colonial, etc.)
- Number of bathrooms and other rooms
- Type of roof
- Attached garages, fireplaces, exterior trim and other special
features like arched windows.
- Custom features
- Know the true costs of rebuilding your home and make sure you
are properly insured.
- Check the coverage amounts of your policy each year against
rising local building costs. Many insurance companies will provide
an inflation protection endorsement to your policy. This automatically
adjusts the dwelling limit (Coverage A) when you renew your policy
to reflect current construction costs in your area. Some companies
use a fixed percentage every year -- make sure your insurance
matches the value of your home.
- Check the latest building codes and ordinances in your town
and community. Building codes require structures to be constructed
to modern standards. If your home is severely damaged, you might
have to rebuild it to comply with the new standards requiring
a change in design or building materials. Most homeowners policies
will not cover these extra expenses. This may even apply to policies
with guaranteed replacement cost. Many insurance companies offer
an endorsement that pays a specified amount toward these costs.
- If you make improvements to your home make sure you increase
the coverage limits of your policy to reflect new cost of rebuilding
Special Consideration for Older Homes
Many older homes have special features or custom components that
may be difficult to replace in today's market. If you don't have
sufficient insurance, your insurance company may only pay a portion
of the cost of replacing or repairing damaged items.