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 When you insure your home, you should insure your home for the total amount it would cost to rebuild your home if it were destroyed. If you don't have sufficient insurance, your insurance company may only pay a portion of the cost of replacing or repairing damaged items.
There are three ways to insure the structure of your home:
Replacement Cost
Insurance that covers the cost of replacing the damaged property without deduction for depreciation, but limited to a maximum dollar amount.
Guaranteed Replacement Cost
Insurance that pays the full cost of replacing damaged property, without a deduction for depreciation and without a dollar limit. This gives you protection against such things as a sudden increase in construction costs due to a shortage of building materials.
Actual Cash Value
Insurance under which the policyholder receives an amount equal to the replacement value of damaged property minus an allowance for depreciation. Unless a homeowners policy specifies that property is covered for its replacement value, the coverage is for actual cash value.
Factors that will determine the cost to rebuild your home include: local construction costs, the square footage of the structure, the type of exterior wall construction, the style of the house, the number of rooms, the type of roof, attached garages, fireplaces, exterior trim and other special features.
For a quick estimate of the amount to rebuild your home, multiply the local building costs per square foot by the total square footage of your house. To find out the building rates in your area, consult your local builders association or real estate appraiser. Also, be sure to increase the limit of your policy if you make improvements or additions to your house.
5 Ways to Save on Homeowners Insurance
Raise your deductible
Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay. Deductibles on homeowners policies typically start at $250. Increase your deductible to save.
Buy your home and auto policies from the same insurer
Some companies that sell homeowners, auto and liability coverage will take 5 to 15 percent off your premium if you buy two or more policies from them.
Factor in insurance costs when shopping for a home
Consider how much insuring it will cost. A new home's electrical, heating and plumbing systems and overall structure are likely to be in better shape than those of an older house. Insurers may offer you a discount of 8 to 15 percent if your house is new. Avoiding areas that are prone to floods can save you about $400 a year for flood insurance. The closer your house is to firefighters and their equipment, the lower your premium will be.
Insure your house, not the land
The land under your house isn't at risk from theft, windstorm, fire and the other perils covered in your homeowners policy. So don't include its value in deciding how much homeowners insurance to buy. If you do, you'll pay a higher premium than you should.
Improve home safety and security
You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm, or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police station or other monitoring facility. These systems aren't cheap and not every system qualifies for the discount. Before you buy such a system, find out what kind your insurer recommends, how much the device would cost and how much you'd save on premiums.
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