For those who have ever purchased a home, which requires homeowners insurance, you may recognize that there is a difference between the amount you paid for the home and the actual amount of your basic coverage for the home, without belongings.
This is due to the fact that you purchased the house at market value and the insurance company is using replacement cost to determine the cost of reconstructing your house. What is the difference between replacement cost and market value? You may want to make the following inquiry as well “does homeowners insurance cover plumbing“?
Market value is the worth of you property, as determined by independent appraisers at a point in time.
If you purchased a house in 2005 in your area, it may have paid $200,000, for example, but just three years later in 2009 it sold for $270,000. This has to do with the demand for homes in the area and the rising costs of real estate, but this doesn’t have anything to do with what the actual cost of rebuilding the home would be.
Generally, insurance companies consider the cost of reconstructing your home in the same physical area in the year in question. That is how replacement cost is defined. Therefore, if you buy a home in a region where prices have risen considerably, the replacement cost may be much less than the current market value of the house.
If you live in an area where the market is not so great during that particular year, then what you paid for your home might be less than what the actual replacement cost of the home is for that year. This is essential to keep in mind when calling the insurance company, as many customers are confused or even upset at the differences in price that insurance companies want to charge for coverage.
Be aware, when obtaining insurance premium quotes, that you may receive two different quotes, one for market value and the other for replacement cost, it is usually best for you to choose replacement cost insurance. In addition, keep in mind that the value of the land associated with the property should not be included n a replacement cost quote. You may also want to ask your agent if fair rental value insurance is include in your premium.
Before speaking with an insurance agent, be sure to properly document the square footage of your home and each room, any special amenities that the home has including wood floors, marble or granite counter tops, porches, decks or sun rooms, and basements.
The insurance company will also want to know major appliances that come with the purchase of the home, as well as the basics of the plumbing system, electrical systems and air conditioning and heating units that are installed. They insurance agent will need all of this information in order to determine the current replacement cost of your home.
Come see us to find out more: fair rental value coverage