With your home being one of the largest investments you will make in your lifetime, it is important your home is properly insured for all its worth. A study conducted by Marshall & Swift, determined nearly two out of every three homes in the United States are underinsured. Upon reviewing your policy, you may find your current policy will only insure a percentage of the replacement value of your home. In the unfortunate event of a total loss, a gap in coverage could lead to a severe financial loss. What you need to know to make the right coverage choices:
Market Value vs Replacement Costs - Know the Difference
Many believe their coverage limits are based on the market value of their home, as opposed to the replacement cost of the structure. When you insure your home based on its market value, you run the risk of having insufficient coverage.
Market values are based on factors such as location, neighboring properties, school zones, and property taxes. However, these factors do not have an influence on what your homeowners insurance policy covers, which is your home’s replacement cost in the event of a loss. Replacement cost coverage is the cost necessary to replace your home and its contents with materials and labor at their current price.
Understanding the Difference
Although insuring your home based on its replacement cost may be more expensive in the short-term, you will be adequately covered should your home be damaged or destroyed. For example, a family buys a home for $200,000 and purchases a homeowner’s policy for the same amount of coverage. However, the replacement cost for the home is $250,000. If an unexpected insured event, such as a fire destroys the home, the homeowners would be responsible for the applicable deductible as well as the $50,000 coverage shortfall or forced to build a new, lower-priced home due to the difference.
Understanding your coverage options and what your policy covers are the keys to a well-balanced policy at work for you and your family. Know the difference and have the peace of mind you need in the event of a loss.
We hope you take this information into consideration when reviewing your homeowners insurance policy. Speak with your Florida Peninsula agent to determine whether you need higher limits or additional coverage. For more information on home prices and replacement costs, read Florida Peninsula’s President, Clint Strauch’s article in Rough Notes.
As one of Florida's largest home insurers, Florida Peninsula Insurance Company knows the importance of keeping your family and home safe and protected. We strive to provide efficient, cost-effective, peace-of-mind protection for our policyholders. To learn more about Florida Peninsula, please contact (877) 229-2244 or Get a Quote on our website.