When it comes to home insurance, new homeowners tend to have a lot of questions about coverage. Numerous coverage options are available, and it pays to know what types of coverage you should get for your home. Today, we’re going to be discussing the idea of insuring your home for more than it’s actually worth.
Home Value vs. Home Replacement Value
An important part of choosing the right amount of homeowners insurance is understanding the difference between your home’s value and its replacement value. The value of your home is what it’s worth in the current market. The replacement value is the actual cost of rebuilding your home. In some cases, homes may cost more to replace than they’re worth.
Functional Replacement Cost
As you now know, the replacement cost of your home is a necessary type of coverage for your homeowners insurance. It’s important to note that different insurers will have various coverage options for replacement insurance. For example, it’s not uncommon for insurance companies to say they’ll provide you with a functional replacement cost, which refers to funds to rebuild your home on a functional level. Functional means it will work. It doesn’t mean you’ll be able to use the exact materials that were used to construct your existing home.
Other Factors that Affect a Home’s Value
The market value of your home is going to include multiple factors in addition to your actual structure. The land value is a big one that can contribute to a high home value. The location of your lot with respect to your surroundings—such as stores, schools, the beach, and so forth—will also affect the current market value, as will the area demographics and real estate market. It’s essential to understand this so you know the difference in cost between insuring your structure and buying coverage based on the market value of your home.
When to Insure a Home for More Than It’s Worth
Many homeowners can opt for an extended replacement cost, which pays more than the market value if their homes need to be rebuilt. This type of extended policy is best for people whose homes have unique features or are constructed of nonstandard materials. For example, older houses and customized homes may have extravagant hand-carved woodwork or slate roofs. It’s going to cost more to replace these specific features and materials. If this applies to your home, insuring above the market value is a necessity so you don’t end up paying out of pocket to replace special features.
No matter how much coverage you decide you need, make sure to buy your home insurance from a trustworthy, experienced provider. For reliable, affordable homeowners insurance, San Diego homeowners know they can trust Altra Insurance Services. We also provide renters, commercial, motorcycle, and auto insurance. For a free quote, call one of our friendly agents today at 619-474-6666.