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Why is my home worth $100,000 and I am told by my agent that I have to insure it for $250,000.

A few years ago, insurance agents and the companies they represented insured your home for its worth or market value.  Today however, they insure your home for its replacement cost.  

You ask why?  

The kicker is that most standard homeowners (HO-3) contracts state that unless you insure your home to at least 80% of replacement value, a loss will be settled on an  “actual cash value“ basis.  The definition of actual cash value is replacement cost less depreciation.

Policy Language is as follows:
If, at the time of loss, the amount of insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, after application of any deductible and with out deduction for depreciation, but not more than the least of the following amounts: (1)The limit of liability under this policy that applies to the building; (2)The replacement cost of that part of the building damaged with material of like kind and quality and for like use; or (3) The necessary amount actually spent to repair or replace the damaged building.

What would happen if you have a loss and coverage was not at least 80% of replacement?  

Example:  Coverage amount on your home $100,000.  Replacement cost on your home $200,000
                  Loss Amount $50,000

        Replacement Cost ($200,000)    x    80%  =  $160,000.

        Coverage Amount ($100,000)   =    62%
                    80%           (  160,000)

        Loss ($50,000)    X    62%  =   Payment for loss $32,000

So, the reason that coverage often exceeds the market value of your home is to insure that you receive the proper amount to replace the damaged part.

Following is a link for you to estimate the replacement value of your home or better yet,
call Booth Insurance Agency, Inc. today or stop in at 111 South Market Street, McArthur, OH for a review of your coverage.


Posted 3:26 PM

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