Home Replacement Cost Coverage

Your son built a model rocket that lands on your roof, bursts into flames and completely destroys your home. Does your home insurance include home replacement cost coverage? If you have home replacement cost coverage, how will your settlement amount be determined?

Benefits of Home Replacement Cost

Mortgage lenders have a financial interest in your home. As such, they will require you to insure your home for at least the value of the money you borrowed. This means if you insured your home for the initial amount of the mortgage (let's say $175,000) your insurance company will only pay up to this amount to have your home rebuilt. Needless to say, the rise in labor and material costs, coupled with changes to building codes, will certainly add to the overall cost of rebuilding; ultimately exceeding your initial insurance coverage amount and resulting in your home being underinsured. That is where a home replacement cost policy comes in.

Extended Home Replacement Cost

However, you can get a higher level of protection from either an extended home replacement cost policy. The extended home replacement cost option will pay a specified percentage over the limit to rebuild your home. If building costs unexpectedly go up in your area, an extended home replacement cost policy will pay as much as 20%—25% more than the limit of a policy.

Guarantied Home Replacement Cost

Not every home insurance company offers it, but the guaranteed home replacement cost option pays whatever it costs to rebuild the home, no matter how much local construction costs have skyrocketed. It's important to understand that neither a guaranteed home replacement cost or extended home replacement cost policy will pay for a better quality home than the one that was destroyed.

Home Inventories Help with Home Replacement Cost Settlements

If you have a home inventory, you can simply hand a copy to your home insurance provider to get your claim started. Both actual cash value policies and home replacement cost policies reimburse the cost of personal items, but an actual cash value policy usually has a deduction for depreciation. The settlement amount that you receive is determined by the type of home replacement cost insurance policy you have.

To get the home replacement cost policy that best fits your needs, compare multiple home insurance quotes at InsWeb.com.