Replacement Costs: What You Need to Know

Now that market values of many homes throughout the nation have dropped, it’s more important than ever to obtain reliable replacement valuations when purchasing insurance.The following tips can help you estimate replacement costs and obtain the right level of protection for your family and financial future:

1. Don’t Confuse Market Valuation With Replacement Cost
Undoubtedly this has led to a great deal of confusion, especially in markets that have experienced significant numbers of short sales and foreclosures.Market values in many areas have dropped below the cost required to rebuild the home.While it might sound like a quick way to save some money, dropping replacement coverage is often costly in the long run. Remember, replacement coverage provides the protection required in the event you must rebuild or replace the home rather than the actual depreciated value of the property or item in question.

2. Overages
Most policies stipulate you must have at least 80% or greater coverage in order for the replacement value to go into effect, but during rapidly changing conditions, inflation or tight labor markets it’s not unusual for repairs to become more costly than originally anticipated.It’s possible to purchase an additional rider that provides enhanced protection against any overages.  Used in combination with replacement coverage, it helps ensure that you have the protection needed in the event of a claim.

3. Zoning and Ordinances
Replacement value alone may not be sufficient, especially if you live in an older home or an area that has implemented new zoning or ordinance changes.
Standard replacement value covers the original item but may not include zoning, ordinance or other regulatory changes required to rebuild. Ask your agent about a zoning and ordinance policy to make sure you are completely covered.