Several decisions need to be made when purchasing home insurance. One of the most crucial decisions you’ll make has to do with how much “Coverage A” you’ll need.
Coverage A is essentially the amount that you’re choosing to insure your home for. When you make the right choice for your coverage A amount, you’re insuring safety and security for your home and family.
In the following article, we’ll go over some of the more frequent questions we get asked in relation to coverage A and home insurance estimations.
Frequently Asked Questions When Estimating Homeowners Insurance
Q: What will my homeowner’s insurance cover?
A: There are actually different types of coverage in every homeowner’s insurance policy. Generally speaking, you’ll have coverages A through F.
The most important coverage type to know about for most homeowners is coverage A.
Coverage A covers all damage to the structure of your home. With a few exceptions, the amount that you choose for your coverage A is essentially the maximum amount you would receive if your home were destroyed.
There are different coverage types for other things in and around your home. For instance, coverage B covers other structures on your property such as work sheds or detached garages. Coverage C covers personal property (the “contents” of your home).
Q: What does “replacement value” mean?
A: When determining coverage A for your homeowner’s insurance policy, a valuation of your home you’ll want to consider is the replacement value or replacement cost. This is often confused with market value, but the two are very different.
Replacement value refers to the amount it would cost to replace your home completely. If your home was destroyed, how much would it cost to rebuild the structure of your home to its original utility?
“Original utility” may sound like a vague term, but because it’s nearly impossible to replace every exact material the exact way that you used to have it, “original utility” refers to restoring her home to the essence of what you had before the disaster that destroyed it.
Remember that coverage A does not cover the property inside your home. Therefore, when you’re thinking about how to determine your coverage A amount, you’ll want to look at the replacement cost of your home, not including internal property (things like clothing and furniture).
Q: What does “market value” mean?
A: Many people think that to determine the coverage A they need for their homeowner’s insurance policy, they should simply look at the market value of their home.
Market value simply refers to how much your home would sell for if you were to sell it right now in a fair sale. Naturally, this isn’t the amount you should consider when deciding on a coverage A amount. That’s largely because the market value will be very different from the replacement cost. It’s always going to cost more to replace a home then it is to buy one that’s already built.
Moreover, market value includes the cost of the property that your home sits on. However, your lot won’t need to be replaced in the event of the destruction of your home.
Q: How do I know if I’m choosing enough coverage A?
A: The experienced agents at Don Neeley Agency can help you determine the correct amount of coverage A you’ll need for your homeowner’s insurance policy. We use a comprehensive tool called a Replacement Cost Estimator to calculate this amount exactly.