Inside Real Estate: Types of Homeowner's Insurance Coverage

When you are purchasing your homeowner's insurance, you will need to decide what kind of coverage you need. There are different kinds of coverage. The original contract price of the house is not accurate because you don’t need to insure the land that can't be destroyed. The current market value of the house may not be accurate because the house may be overvalued or undervalued by sellers and buyers.

You could get the actual cash value of the property, which includes the original cost of building less the depreciation and amounts to what your old stuff is worth today. But there may be newer, better building techniques or materials. Rebuilding a house similar to yours at today’s costs could be more expensive than the coverage you would get insuring at actual cash value.

If you know you want a house similar to what you have, but you want it created at today’s building standards & costs, you will want to insure the house for the REPLACEMENT COST, or what it would cost to get you new stuff.

Generally, most people are happier with homes insured at replacement cost rather than actual cash value. If everything got destroyed, they would be able to get their lives back to a more familiar style of living. However, it does cost more to insure at replacement cost rather than actual cash value. It is good to find out what your homeowner’s insurance covers if your house was ever destroyed.