Do you know how much homeowners insurance you have? Is it enough to cover the cost of repairing or replacing your home if something happens?
Many homeowners get a policy without thinking too much about the differences between replacement cost, actual cash value and market value.
However, these three kinds of costs can help you determine the amount and type of homeowners coverage you need, since it varies based on your property type, financial situation and more.
Replacement Cost
This refers to the price of rebuilding your home at today’s construction and labor costs. It’s usually less than your home’s market value, as it doesn’t include the price of the land your home sits on. Replacement cost also doesn’t deduct for depreciation. There are a variety of factors that determine replacement cost, including your home’s size and age, custom features and garage or basement space.
Actual Cash Value
Actual cash value generally applies to personal belongings inside your home with a reduction based on depreciation. In the event that they are lost or damaged in a covered peril, you would be reimbursed for the item based on factors like age and condition — meaning it’s typically less than replacement cost.
Market Value
What would your house likely sell for in the current real estate market? That’s the (aptly named) market value. This includes the structure and the land it sits on, which is why market value may be higher than replacement cost. Of course, it can fluctuate based on demand for homes in your area, interest rates and the condition of your property.
Figuring out estimates for each of these costs can help you determine the level of homeowners insurance coverage you need. If you need help with it, don’t hesitate to
get in touch.
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