When you buy a homeowners’ insurance policy, Coverage A is the amount that covers your home itself. If your home is damaged or destroyed by a covered disaster, your repair or rebuilding costs will be covered up to your Coverage A limit. Here’s what you should think about when deciding your Coverage A limit.
Market Value vs. Replacement Cost
The first concept that is important to understand is the difference between Market Value and Replacement Cost.
Market Value is what you paid for your home, or what you could expect to sell if for. This is also referred to as Actual Cash Value.
The cost to rebuild your home would likely cost you much more than the Market Value. The cost to rebuild your home in the event of a total loss is what is referred to as Replacement Cost. There are a number of factors that are considered when determining Replacement Cost value. The following are a few of the more common.
The real estate market swings up and down — if you bought your home in what is referred to as a “buyer’s market”, you probably got a good deal on your home. However, when determining the cost to rebuild your home, the current housing market has little to do with the cost of rebuilding your home.
If you need to repair or rebuild your home, your insurance policy generally covers using the same specifications and materials as you had before the damage. However, construction prices for both materials and labor can vary greatly each year.
In addition, it can sometimes be more expensive to build on an existing lot than in a new development. That’s because the builders don’t have the efficiency of working on several homes at once, and they have to work around the existing homes in the neighborhood.
As you can imagine, the cost to build or rebuild a house changes over time. The cost of building a three-bedroom home increases every year and over time the cost to replace your home does as well. For this reason, many companies offer an “Inflation Guard” endorsement that automatically increases your home coverage every year to keep up with the effects of inflation.
One thing you should not consider for your Coverage A limit if your furniture and other personal property. These items have separate limits. Coverage A is only for your home’s structure and fixtures.
Work With Your Insurance Agent
Even though there are a lot of variables that go into how much coverage you need, determining your limits is a science. Skeele Insurance Agency uses the latest data on home prices and construction costs in the local area to help you choose the right amount of coverage for you. We have locations in DeRuyter, Chittenango, Cazenovia, Manlius, Moravia, and Waterville. Make an appointment to stop by or give us a call to verify that your home is fully covered against potential disasters.