Why I Opted for Replacement Coverage Homeowners Insurance

by Christy Bieber | Published on Aug. 16, 2021

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Father and toddler daughter play in home's backyard.

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I didn't want to be left unprotected.

When I purchased my homeowners insurance policy, I made a decision that caused my annual insurance premiums to be higher.

That choice was to opt for replacement value coverage for both my house and my personal property. I chose replacement value coverage over market value coverage despite the fact that it was much more expensive.

Here's why I made this decision.

Replacement value coverage provides more protection

To understand why I chose replacement value coverage, it's important to know the difference between replacement cost insurance coverage and market value insurance coverage, which is the alternative that I rejected.

Replacement cost insurance coverage will pay to replace both a home and possessions after a covered loss. If the house or my personal property within it are destroyed or stolen, the insurer will cut a check for the amount necessary to rebuild the same house or to buy the same type of property.

For example, if the house catches fire and burns down, the insurer would provide enough to rebuild it as it was before the blaze and to buy all new items that were within it, ranging from beds to furniture to electronics and appliances.

Market value coverage, on the other hand, only pays what the home and personal possessions are worth at the time of the covered loss. And in many cases, this is not enough to rebuild the exact same house.

If property values have fallen or construction has become more expensive since the house was originally built, then the insurer might provide less money than is needed to get the property back to the way it was after a disaster.

Market value coverage can be a big problem when it comes to dwelling coverage. After all, if the market says the home isn't worth as much as it costs to rebuild, it would be impossible to restore the house to its glory after a disaster since the insurer wouldn't provide the necessary funds.

It can also be a huge problem when it comes to personal property coverage. That's because the market value of a used couch or old bed or old TV isn't very high. But if a couch or bed or TV is destroyed, chances are good it will be replaced with a much costlier new one -- not an old one of similar age to the destroyed one. As a result, if an insurer is paying the depreciated value of used possessions, the money it provides generally won't be enough to buy new possessions after loss or theft.

I don't want to end up not being able to rebuild my home if there's a disaster. Nor do I want to have to come up with a lot of money to buy new things if my old possessions are destroyed. I want my insurance to provide comprehensive protection and ensure I end up in the same position that I was in prior to the time when things went wrong. As a result, it is well worth it for me to pay higher homeowners insurance premiums for replacement value coverage.

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