Are you in the process of purchasing a home but are unsure of how much coverage you need? Navigating insurance coverage can be a difficult task for anyone but is made especially confusing when you’ve already got to worry about closing on a new home! If you’ve already begun searching for the most comprehensive home insurance policy available, you’ve probably heard a lot about market value and replacement cost. Both of these numbers can be used to determine your level of insurance coverage. Finding yourself a bit confused about which term you should be most concerned about? Keep reading to learn more about the importance of replacement cost when it comes to determining your home insurance coverage limits.
What is Market Value and Why is it Important?
When you’re on the hunt for the perfect home to fit your family’s needs market value is something that you should be considering. The market value of your home is how much you would have to pay to purchase the home (dwelling) and the land that it sits on in its current condition. The actual market value of your home can be influenced by many different factors including how hot your local real estate market is at the moment, your proximity to great schools in the Rolling Meadows area, the availability of similar homes in your neighborhood and much more.
Market value coverage can be a practical insurance option if you are purchasing a historical or ornate home that was built more than a few decades ago. This is because the replacement costs for this type of home would likely be very high. Additionally, market value coverage may also be a good option for those who have fewer funds to invest in their policy but still want a chance at recouping at least part of their expenses after a loss. However, you should keep in mind that purchasing a market value policy means that you run the risk of having incomplete coverage.
What is Replacement Cost?
When your insurer refers to replacement cost, they are considering how much you would have to pay if you were to replace your entire home. Purchasing a policy at replacement cost value means that your insurer would reimburse you for the cost of repairing or replacing your home after a loss. When determining the replacement cost of your home, only the dwelling and its associated fixtures, finishes, and systems are considered. The value of your land is only used when determining market value.
Replacement cost coverage can come in very handy in a total loss situation because it makes it possible for your family to maintain the same quality of life after an accident. You will be able to rebuild and return to the quality of home that you’re accustomed to without much of a financial interruption. But it’s important to keep in mind that replacement costs may change over time, making it important to review your home insurance policy annually.
If the terms of your original policy no longer meet your needs, you can work with your independent insurance agent to make the appropriate adjustments. It is also important to update your insurance agency if you’ve made any significant updates or upgrades to your home that may increase your estimated replacement cost.
Contact AFI Insurance Today
Interested in learning more about home insurance options for Illinois homeowners? Whether you’re ready to purchase homeowner’s insurance for the very first time or you need to review your current coverage, we are here to help! Call (847) 937-9618 or contact us today for more details and request a free quote.