Home Insurance Replacement cost explained
This is by far the most common misconception I hear about home insurance. Here is what you need to understand, what your house is worth isn't really that important to the insurance company. Let that sit in for a moment. The value of what you can sell your house for is not that important for a replacement cost home insurance policy. Right now, you are probably saying to yourself "What!! That doesn't make sense?!". Allow me to explain, the cost of building materials and labor are in no way connected to the value of the house. When we talk about replacement cost, the insurance company is trying to factor the average cost of labor and materials in your area. The most important question they are trying to answer when determining the amount of coverage you need is how much money will it take to rebuild your home. If your house were to burn to the ground the cost to build you a new one similar to what you had is replacement cost. They are not looking to buy you another house but to build you a new house. Let’s say you are looking to buy a home in a up and coming neighborhood. The home is older and needs some updating. You are buying early knowing that the neighborhood will increase in value. You are getting the home at a good price. When you get the insurance quote from your agent. The Dwelling Coverage A is much higher than what you are paying for the home and the appraised value. But to rebuild that home given its older character and features is going to cost much more that your purchase price. These are the kind of things your agent should be explaining to you.