Are you thinking of buying a new home in the Green Bay area? Chances are you landed here because you’re on the hunt for great home insurance that won’t break the bank–and you’re getting bogged down by all the options. One of the biggest decisions you’ll have to make about your coverage is choosing the right amount of insurance for your home itself, this is referred to as Coverage A. While you might jump to the conclusion that you’ll insurance it for what you paid for it, you might want to continue reading to better understand the difference between Market Value, or Actual Cash Value, and Replacement Cost.
Market Value or ACV
Market value is the amount a home would expect to sell for in an open market. If you insured your home for Market Value and your home was destroyed by a covered peril, you would likely fall far short of having enough money to rebuild your home. Simply put, it costs a lot more to rebuild a new home than it costs to buy an existing one.
Replacement Cost Coverage
Replacement cost coverage covers the cost to rebuild your home if it’s destroyed by a covered peril. Investing in this type of coverage means that you’ll be able to replicate your current living arrangement with as little fuss as possible; you’ll be able to hire contractors to rebuild from the ground up.
Things to Know About Replacement Cost Coverage:
- There’s usually a cap. The cost of materials and hiring skilled pros can vary dramatically from year to year, so insurance companies usually have a cap in place for each replacement cost policy; in other words, they’ll pay to rebuild your home up to a certain dollar amount. You can give yourself some more wiggle room by splurging on a padded cap that pays to replace your home plus 20% (or another percentage that you and your agent agree on.)
- As you might expect, Replacement Cost coverage tends to cost a bit more, simply because it’s a more robust coverage for your home. If you live in a historic home with a lot of unique features–like a hand-carved wooden mantle, or detailed crown molding and paneling, for example–the replacement cost can shoot up significantly.
How Much Coverage Do You Need?
How to figure out how much home insurance coverage you should have can be a daunting task. But by sitting down with an experienced agent, we can calculate the cost to replace your home in the event of a total loss. We can also help make sure you have a good understanding of what your options are and what you should consider as you make your decision. Also keep in mind that your mortgage lender likely requires a minimum amount of coverage (often times full replacement cost), so check with them first to make sure you invest in enough coverage to stay on their good side.