Homeowners may notice that there can be a significant difference between the amount of your insurance coverage and the purchase price of the home.
This is simply because you paid market value for your home while the insurance company used replacement cost value to estimate what the costs would be to rebuild your home. What is the difference between replacement cost and market value? You may want to make the following inquiry as well "does homeowners insurance cover plumbing"?
Market value is simply the price you paid for your home and most often insurance agencies do not give market value a second consideration because the real estate investment market can fluctuate so greatly.
As an example, you might have purchased you home for $180000 in 2003 and sold it for $270000 in 2008. These price differences are due to market fluctuation, and are not at all related to the cost of reconstructing the home.
Homeowners insurance companies will always look at the cost of rebuilding the exact same home in the exact same location for a certain year. That is how replacement cost is defined. Consequently, if the value of your home has doubled in the past four years, the replacement cost, or cost of reconstruction, will likely be far less than the current market value ascribed to your property.
If you live in an area where the market is not so great during that particular year, then what you paid for your home might be less than what the actual replacement cost of the home is for that year. It is important that you understand this when you contact insurance companies and ask for rate quotes.
Keep in mind when receiving estimates from the insurance company that many may give you replacement value insurance coverage costs as well as market value insurance coverage costs, but it is always best to take the replacement value insurance coverage since this is what will be needed to replace your home if a disaster occurs. Keep in mind that the value of the land should not be part of the replacement cost insurance premium. You may also want to ask your agent if fair rental value on insurance policy is include in your premium.
Prior to seeking an insurance quote, insure that you have accurately documented the area of your home, in square feet and an special amenities that may add to its cost.
The insurance company will also want to know major appliances that come with the purchase of the home, as well as the basics of the plumbing system, electrical systems and air conditioning and heating units that are installed. This can help them to assess how much it will cost to replace these items during the current year of your homeowners insurance policy.
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