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Is Your Home Insured for Replacement Cost or Actual Cash Value?
By Ken May

While all policies have subtle differences, most homeowner’s policies have coverage that is very common. If you are ever in doubt, you can always read the policy language or call your agent. Never assume anything because your “Uncle Larry” said so!

First, you can expect that your actual dwelling (house) is covered. Hopefully, your insurance agent was diligent enough to insure that the structure was “insured to value”. This value is called Coverage A and most other coverages pivot off of the Coverage A amount. Other structures on the property such as fences, sidewalks, a detached garage, or shed are likely covered as a percentage of the Coverage A amount.

What if you run a business out of your detached garage or shed? Is there coverage? This is not covered under a typical homeowner’s policy. And what about your jewelry, artwork, or that nice gun collection? Coverage on these items is usually limited to a sub-limit which may not be enough to cover a loss without added coverage.

Do you know the difference between Replacement Cost and Fair Market Value? Buying coverage at replacement cost bridges the gap that can be caused by inflation and loss of value as things get older. If you are insured at Fair Market Value, depreciation will be deducted from the value of the item before you receive payment on the loss. At Ken May Insurance Services, we insure at replacement cost and try to insure everything to 100% of value. That way, you will receive the amount that is equal to what the item was when it was new. Without getting too technical, it is crucial that your home is insured to at least 80% of value or all of your personal property will be adjusted based on fair market value (everything will be depreciated first). This can mean a lot of money out of your pocket!

Does your homeowner’s policy cover you for natural disasters? While most policies in California cover you for damage caused by wind, hail, fire, and lightning, they do not cover you if the damage is caused by an earthquake. Flash floods and sewer backups are generally not covered but coverage can be purchased to cover both flooding and earthquakes.

What if somebody trips on a piece of carpeting that is sticking up or falls due to a broken stair? If the property owner is found to be liable, these are usually covered but only to the limit purchased on the policy so it is important not to try to save a few dollars by not buying a proper amount of coverage.

What is a Deductible and why does it seem so high? A deductible is the amount the insured must pay when a claim is made before the insurance company starts paying. The higher your deductible is, the lower your premium will be. While most of the deductibles in our office are $1000 on homeowner’s policies, it is not uncommon to see a $2500 deductible or one that is $5000. It is important to remember that a homeowner’s policy is not a maintenance agreement; it is designed to cover catastrophic coverage. For example, you don’t want to file a $1500 water loss claim when you have a $1000 deductible and your future premiums will swallow up much more that the $500 the insurance would pay out.

Be sure to take the time to ask your agent about each of the coverage listed on your homeowner’s policy. It is important to be properly covered so that in the event of a loss, you won’t have to dig additional money out of your own pocket to become whole again.

If you would like to speak with a licensed agent, please call our office at (760) 893-8055 or contact us via email.
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