About two out of every three homes in the United States are underinsured. That is a dramatic statement, but it is true simply because homeowners underestimate the replacement cost for their home.
What is replacement cost?
Replacement cost is the estimate of rebuilding a new home that is of like and kind quality to your home. Factors influencing replacement cost include: construction costs, square footage, the quality of materials used to build the home and home features.
Knowing the replacement cost of your home is important because it will assist you in selecting appropriate limits for your dwelling coverage.
One cannot be certain your homeowner insurance fully covers you unless your limits are set at or above the replacement cost of your dwelling.
Replacement cost calculations are not a guarantee.
While homeowners seek the best possible cost to rebuild their home, they have no guarantee it will be ultimately accurate. In the event of a natural disaster, such as a hurricane, which impacts everyone in your region, the costs to rebuild a home may be far high than an initial estimate.
Two options
Insurance companies do offer options to expand protection and create a buffer against rising costs, both of which are more expensive than typical a replacement cost policy.
1. Extended replacement coverage - covers you up to a certain percentage above your dwelling limit.
2. Guaranteed replacement cost policy - will reimburse you the full cost to rebuild your home, no matter the cost. This coverage may not be available in every state.
Next week we will discuss - how to calculate the replacement cost of your home. Look forward to seeing you then.
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