When you insure your home, you should insure your home for the total amount
it would cost to rebuild your home if it were destroyed. If you dont have
sufficient insurance, your insurance company may only pay a portion of the cost
of replacing or repairing damaged items.
There are three ways to insure the structure of your home:
- Replacement Cost: Insurance that pays the policyholder the cost of replacing
the damaged property without deduction for depreciation, but limited to a
maximum dollar amount.
- Guaranteed Replacement Cost: Insurance that pays the full cost of replacing
damaged property, without a deduction for depreciation and without a dollar
limit. This coverage is not available in all states and some companies limit the
coverage to 120 percent of the cost of rebuilding your home. This gives you
protection against such things as a sudden increase in construction costs due to
a shortage of building materials.
- Actual Cash Value: Insurance under which the policyholder receives an amount
equal to the replacement value of damaged property minus an allowance for
depreciation. Unless a homeowners policy specifies that property is covered for
its replacement value, the coverage is for actual cash value.
For a quick estimate of the amount to rebuild your home, multiply the local
building costs per square foot by the total square footage of your house. To
find out the building rates in your area, consult your local builders
association or real estate appraiser.
Factors that will determine the cost to rebuild your home:
- local construction costs
- the square footage of the structure
- the type of exterior wall construction -- frame, masonry (brick or stone) or
veneer
- the style of the house (ranch, colonial)
- the number of bathrooms and other rooms
- the type of roof
- attached garages, fireplaces, exterior trim and other special features like
arched windows.
Also be sure to check the value of your insurance policy against rising local
building costs each year. Ask your insurance agent or company representative
about adding an "INFLATION GUARD CLAUSE" to your policy. This automatically
adjusts the dwelling limit when you renew your policy to reflect current
construction costs in your area. Also, be sure to increase the limit of your
policy if you make improvements or additions to your house.
