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How Much Insurance Coverage Should I Buy for My House?

By August 4, 2016April 19th, 2024No Comments

One of the questions I get most from my clients is “Why is my house insured for so much? I could never sell it for that amount.”

The reason for this difference is that your insurance policy is insuring your property on a Replacement Cost basis. Replacement cost is the amount required to replace the structure as-is in the event of a loss. There are times when this amount will be lower or higher than the Market Value of your home.

The Market Value is what you can expect to sell your home for in the current market. Market Value will take into account the land that the property sits on, school district, etc. Let’s assume we have a small rancher in Newtown Square, PA on an acre of land. The Market Value of this property will likely be much higher than the Replacement Cost because the land and school district will account for a significant portion of the value. Your Replacement Cost insurance policy will only be covering the materials and labor required to re-build the small rancher.

Now, let’s assume you have a stone, Victorian-style home sitting on a quarter of an acre in Drexel Hill, PA. Chances are, this property was built in the early to mid-1900s making the replacement of these materials very expensive. In this case, the Replacement Cost of the home could greatly exceed the Market Value of the home.

With that being said, it’s imperative that you include the following endorsements on your PA homeowners insurance policy:

Extended Replacement Cost – This coverage will give you an additional 25% or 50% of your Dwelling coverage. For example, your home is insured for $200,000 at the time of loss. It then cost $240,000 to rebuild the home. Without this endorsement, you’d be on the hook for $40,000. Determining the replacement cost of your home is an inexact science. I could do a replacement-cost estimate with 4 different companies and come up with a different replacement cost of the same home each time. Don’t leave your financial security to chance… make sure you’re adequately protected.

Ordinance and Law Coverage – This coverage provides you coverage for the increased replacement cost resulting from changes in building codes. For example, building codes in your area may require that all new construction be sprinklered. Because your home was originally built in 1975, your home didn’t include sprinklers and, therefore, it wasn’t accounted for in the replacement cost estimate. This endorsement will account for that increased expense.

Water and Sewer Backup – This doesn’t have to do specifically with replacement cost, but it is a very important coverage. Your homeowners policy, without this endorsement, does not provide coverage for a backup of sewers into your home… trust me, it happens! Don’t leave your home exposed.

Call Risk Averse Insurance in Media, PA for a quote on your PA homeowners insurance and PA car insurance. We can also provide insurance for motorcycles, RVs, classic cars and any other “toys” you own.

Risk Averse Insurance is an insurance agency in Delaware County, PA that specializes in providing high-quality insurance products at an affordable price.