Becoming a homeowner comes with a lot of responsibility, especially when it comes to dealing with your finances. There are so many different policies that you can choose from with homeowner’s insurance, but how do you know which one will work best for you and your wallet? This blog will go into detail explaining the different replacement cost insurance policies that are available to you and how each one works for specific situations.
What is a Replacement Cost?
A replacement cost is also known as a replacement value and is known to replace an asset with the same or equal value. This part of the policy is a method of determining what the insured item is worth. The value of the item is what the actual cost would be to replace the asset. If you live in an area where natural disasters are common, then this policy is perfect for you.
Replacement Cost
In the event of a natural disaster hitting your home or a break-in happening, your home insurance policy will cover the damages according to the replacement cost insurance policy. This means your insurance provider will do their best to find an exact match or something very similar to your lost or stolen items such as electronics, furniture, structures, or roofs.
Guaranteed or Extended Replacement Cost
Homes can be severely damaged by natural disasters like snowstorms, hail, and ice, and can cause the rebuilding costs to spike above what your homeowner’s insurance policy covers. By purchasing a guaranteed or extended replacement cost insurance policy, you will be covered past the homeowners insurance limit. A guaranteed policy will cover the entire replacement cost, while the extended policy will cover an extra 20% more than what your original policy covers.
Modified Replacement Cost
This policy replaces older items with new, updated items. If your home is older, you may not be eligible to purchase a replacement cost policy, which would leave you to consider a modified replacement cost policy instead. The replacement will be based on modern, new techniques that make a perfect fit in today’s world. If something in your home was destroyed that was old and out of date, it will be replaced with a similar product that is new and follows current building codes.
How to Prevent Items Being Lost
Although we don’t have any control of any unexpected events, there are ways you can make your home less susceptible to these events such as:
- Disaster Resistant: You should add storm shutters or reinforce your roof. You may also want to look into purchasing a modified replacement cost policy, which is explained above.
- Flood Resistant. You should seal your basement walls with waterproof compounds and construct flood walls to help prevent the water from reaching your home.
- Home Security: Your home should have smoke detectors, an alarm system, and dead-bolt locks for safety precautions. A lot of insurance companies encourage you to purchase these items by saving you on premiums.
It’s important to understand how to manage the costs that come along with owning a home. The TJ Woods Insurance Agency takes pride in our expert insurance and financial services, and we can help you manage the costs of your personal insurance. We are here to connect you with the best policies that are perfect for you and your loved ones. Want to learn more about home insurance policies? Get your free quote today, and contact us with any questions.
