As you shop around for a home insurance plan, two terms that you’ll likely encounter are replacement cost and market value. Both of these terms are integral to the calculation of your Coverage A amount. That is, you’ll need to know the market value of your home and the replacement cost of your home to know how much to insure your home for (how much Coverage A you’ll need).
Calculating Coverage A can be a challenge if you don’t fully understand the difference between replacement cost and market value. That’s what we will be discussing in this article.
What Is “Market Value?
Market value is a term that can be defined as the amount that your home is worth on the market right now. If you were to sell your home right now, how much would you get for it in a fair sale? This is the market value of your home.
What Is “Replacement Cost”?
Replacement cost is a term that can be defined as the amount it would cost to replace or restore your home were it to become severely damaged or completely destroyed by an unexpected event. The types of unexpected events that might destroy your home in Columbus would be a tornado, a severe thunderstorm in the summer, a hailstorm in the winter, a fire, or another unexpected and disastrous event.
Understanding How to Determine Coverage A
Again, Coverage A is essentially the amount that you want to insure your home for. If a covered disaster occurs, how much money do you want to receive from your insurance provider to bring your home back to its original state?
At the outset, you may assume that this amount would simply be whatever your home’s market value is. Unfortunately, it’s not that easy.
Chances are, you won’t be ensuring your home for the amount that you paid for it. In some rare instances, it’s possible that you’ll insure your home for less than you paid. This often happens when you purchased your home a long time ago, and property prices have since changed, the value or worth of your land or area has changed, or the state of your home has deteriorated over time.
It’s also important to remember that when you choose Coverage A, you should not include the amount that you paid for your actual land (your lot) or the contents of your home. First, your lot won’t need to be replaced. Next, the contents of your home will be covered under another part of your insurance — not Coverage A.
A more likely scenario is that you’ll need to insure your home for more than you paid for it. This is because, over time, the cost of labor and materials will have likely gone up. Moreover, it’s always going to be more expensive to construct a new home than it is to purchase a home that’s already been constructed.
Other considerations that will impact the ultimate amount of Coverage A that you choose will include:
- Coinsurance: It’s important to understand coinsurance and to make sure the coverage you choose meets the coinsurance requirement in your policy.
- The amount of coverage that your lender requires should you have a mortgage on your home
- How much the price of labor and materials has gone up since he purchased or built your home
Get Help With Home Insurance
Anton Insurance has your best interest in mind. We want to help you find the best insurance policy with adequate coverage for your home. If you have questions about choosing a Coverage A amount for your insurance policy, please contact us at your earliest convenience to learn about your options.