Whether you’re planning to purchase a new home in southeastern Wisconsin, or you’re looking for a new agent and will be updating your homeowners insurance, you’ll need to understand ‘market value’ and ‘replacement cost.’ Both of these terms are considered different valuations of a property, and they are often referred to when purchasing a homeowners insurance policy.
Regarding Replacement Cost in Relation to Coverage A
When buying insurance, all homeowners need to decide how much coverage they want, not only for the home itself (Coverage A,) but for other buildings and your personal property as well. As you might expect, the more coverage you choose, the higher premium in most cases.
Your first thought would be to insure your home for what you paid for it. This amount is called Market Value. But once you understand that in the case of a total loss, that might not be enough to rebuild you home, you might choose to insure it for a bit more than the Market Value.
Insuring your home for what it would cost to rebuild it is referred to as Replacement Cost, which is the cost to rebuild a property and return it to its original value and utility. It is advised that you insure your home for at least this amount so that you’ll have enough funds to cover a complete rebuild of your home in the event of a disaster covered by your policy.
There are many things to consider when deciding on Coverage A:
- Do you have a mortgage on your home? Lenders often provide stipulations regarding minimum Coverage A amounts.
- Co-insurance is another consideration and is not to be confused with health insurance co-insurance. Property co-insurance refers to the minimum percentage of coverage you must purchase in order to get a full payout in the event of a covered partial loss claim.
- Keep in mind the varying construction costs you may be met with. In other words, don’t look at how much it cost to build your home in the year that it was built. Instead, look at material and labor prices that represent the current market. Also keep in mind that it is always more expensive to build a home than it is to purchase a ready-built home, so the market value of your home should not be a factor in the amount of coverage A you choose.
- Finally, remember that the replacement cost/coverage A amount should not include the value of your lot.
How an Insurance Agent Can Help You Determine the Right Coverage A Amount
It is of the utmost importance to ensure that you have adequate and comprehensive coverage to protect yourself if your home is seriously damaged or destroyed. Homeowners insurance can turn a terrible occurrence into a moment to be utterly grateful (for planning ahead!)
Choosing a Coverage A amount is one of the most critical aspects of buying home insurance, and we’d like to help. At Smith Insurance and Financial Services, we can run your numbers through a tool called a Replacement Cost Estimator. This tool will consider all important aspects of your specific situation and help our agents come up with a useful number for your coverage A.
We can also help you with other aspects of your homeowner’s insurance. Most of the best policies include coverage for personal property (interior property like furniture) and other structures on your lot, such as barns, garages, or gazebos. Our agents are friendly, communicative, and knowledgeable.
Give Smith Insurance and Financial Services a call today to learn more about your homeowner’s insurance options and how to determine the best amount for your coverage A.
