Understanding Your Property Insurance Coverage

Often people who have had a break-in or fire at their home, are astonished to find that their coverage is not as comprehensive as they thought. Knowing what risks are covered by your property insurance before you have a fire loss or theft loss is critical.

Typically insurance policies are sold on the basis of actual cash value, and only if you agree to pay an additional premium, can you entitle yourself to replacement value. Why is this important you might ask? Well, if your home is damaged in a fire and you have replacement cost and it costs $100,000 to replace the home, the odds are good that you can collect the full $100,000 to replace the home. However, if before the fire your home was run down and in poor shape due to neglectful maintenance, and would have sold for $50,000 before the fire, and you have an actual cash value policy, then expect that the insurance company may deny your requests to be reimbursed for anything above the actual cash value of the property. Consequently, it is extremely important to understand what you are purchasing when you contract with an insurance company and pay premiums for coverage.

Typically your agent is the one who should explain the coverage to you at the time you purchase the policy. An agent is obligated to obtain the insurance product you specify. Thus, if you have instructed your agent to get you replacement cost coverage, but the agent in fact buys only actual cash value coverage, it in some jurisdicitions it may be possible to hold your agent responsible for failing to get you the correct insurance.

Insurance premiums are all about the risks that you are having covered in case of a loss. Replacement cost is always slightly more expensive.  But, it may well be worth the cost. So if you are reading this, and you do not know what your insurance policy says, get it out now and look at it. Did you expect it to say replacement cost value is paid if there is a loss? Does it in fact say that replacement cost value will be paid? If not, contact your insurance company or insurance agent right away. Do it now. Don’t wait for a fire or theft to occur.