Homeowners Insurance – Know Your Coverage Options

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Homeowners Basics

An essential step in purchasing a home is getting homeowner’s insurance. However, understanding

terms like Insurance to Value, Replacement Cost, Extended Replacement Coverage and Market Value may seem like a tough feat.  If you want simple explanations to these important insurance terms, you are in the right place!

Replacement Cost

Replacement Cost: Coverage to replace your home or personal property with like kind and quality, without subtracting depreciation. Each insurance carrier has a replacement cost estimator they use to determine the replacement cost of your home. It uses specific characteristics of your home to calculate how much it would cost to remove the debris from your current home and rebuild a home of like kind and quality in the case of a total loss, like a fire. This is the amount of insurance coverage you need to carry on your home. It is important that you are carrying enough coverage on your home to be able to replace your home in the case of a total loss

Extended Replacement Coverage

Extended Replacement Coverage: Some homeowner policies include Extended Replacement Coverage. This means that if the carrier has under-estimated the Replacement Cost of your home, there is additional coverage available to rebuild your home in the case of a covered loss. The  Extended Replacement limit on your policy can vary by carrier or even policy to policy.  Some common amounts include: 125%, 150% or even 200%.

Insurance to Value

Insurance to Value: You need to insure your home at 100% of the Replacement Cost. Be sure you are insuring the full value of your home, not just a percentage of it. If you are underinsured, your claims could be paid at a percentage of the loss.  For example; if you carry insurance for 70% of the value on your home, your claim would likely be paid at 70% of the loss.

Market Value

Market Value: This is the value of your home and land and what it could be sold for.  Insurance coverage is not determined by the real estate market.  Homeowners insurance also doesn’t cover the land that your home is built on. The market value is likely more than the Replacement Cost of your home.  In today’s real estate market, home values are higher than what it would cost to replace the structure, therefore it is likely the purchase price will be higher than the replacement cost coverage amount on your homeowners insurance policy.


There are many homeowner options available, be sure to choose a policy that is tailored to fit your needs. Your home is likely your most valuable asset, be sure that you understand the coverage on your home and how your policy will respond in the case of a claim.

–  Casey Shipley



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