Why Buy Guaranteed Replacement Value Home Insurance?

When you start to investigate home insurance coverage, you'll notice that policies offer different levels of protection. The protection you get in cash terms depends on the type of coverage you buy.

If you want more comprehensive coverage, then look at guaranteed replacement value options. How does this kind of home insurance work and what are its benefits?

What Is Guaranteed Replacement Value Home Insurance?

Not all homeowners insurance coverage pays out at the same level. For example, if you buy an actual cash value policy, then your insurer's payment is based on the current value of your property or possessions at the time of your claim. This coverage works on a depreciation basis. So you might not get all your money back. If something is cheaper now than when you purchased it, then your insurer pays out the lower amount.

You can take out replacement value coverage as an alternative. This coverage doesn't use depreciation but bases payments on original costs and policy limits. Guaranteed replacement value policies take this one step further. Here, your insurer pays claims based on actual replacement costs even if they exceed your original insured sum. You usually get a percentage rate over your limit to cover the current costs of rebuilds, repairs, or replacements.

What Are The Benefits Of Guaranteed Replacement Value Coverage?

If your home insurance doesn't meet all your costs, then you have to cover a cost deficit. For example, if your home burns down in a fire, then an actual cash value policy might not pay for all your rebuild expenses. Even a regular replacement value policy might leave you with out-of-pocket costs. Your insurer might not pay more than your insured amount or the original value of your home.

However, rebuild, repair, and replacement costs change over time. They tend to increase. So, it might cost you more now to rebuild your home than it would have when you bought your coverage or set your insurance limits.

Guaranteed replacement value coverage gives you more comprehensive financial protection. These policies are more likely to meet your real costs when you file a claim, especially if your coverage includes an extended percentage rate. In an ideal scenario, you won't have to cover any expenses yourself over and above your deductible limits.  

Guaranteed replacement value insurance is more expensive than basic coverage; however, this extra expense could pay off if you need to file a claim. For more information on the different rates available for different policies, contact a home insurance company.