When you purchased your home, you bought insurance to protect it. Your Homeowners insurance is there to rebuild your property if you were to suffer a fire, severe weather, or many other losses.
However some people make the mistake of buying the cheapest insurance, thinking that it’s just like every other Homeowners policy. That’s not true!
When you look at the details of your home policy, you’ll see that you are either covered for “full replacement cost” or for “actual cash value.” These are important differences.
Replacement cost means that the insurance company will pay whatever the cost is to get your home back to the state it was in before the claim, up to the policy limit. It’s why your home is usually insured for a lot more than you actually paid for it. Building costs and materials are always increasing and it may cost much more to re-build your home after the claim than it did when it was first built.
Actual cash value on the other hand, only pays what your home was worth at the time of the loss minus any depreciation.
Here's an example: Let's say your entire roof was blown off in a windstorm. Replacement cost insurance would buy you a new roof, minus your deductible. Actual cash value would take the cost of the new roof and subtract any depreciation due to age. You'd get a check for this amount, minus your deductible.
Here’s another example using a common household item (because you can have replacement cost on BOTH your house and contents). Let’s say that your couch was burned in a covered fire claim. Replacement cost insurance would buy you a new couch in the same style and value as the original was when you bought it.
Actual cash value would only pay what your couch was worth at the time of the fire. The “market value” of your couch is more likely what you could have sold it for on Craigslist! You’re not going to get a new couch from the claim, but you could go buy a used one similar to the condition of yours right now.
Does that make sense? Now imagine what a difference that makes if you were to suffer a major loss!
We believe that replacement cost is what everyone needs! So if you’re shopping for home insurance and notice that one price is substantially less than the others this could be why. Always check to see what kind of coverage you’re purchasing. And give us a call at 937-592-4871 to learn more and get a quote for your Ohio homeowners insurance. You can also contact us via our website.