How Much Home Insurance Coverage Do You Have?

To determine your property’s coverage, you must first determine your deductible and the amount of your insurance coverage.

1. Deductible amount

The deductible is the amount “deducted” from the final amount of the loss owing to the insurance company. It is the amount for which the homeowner is responsible. The deductible does not apply to liability insurance or health insurance (for example, if you are injured on the insurer’s premises). Instead, the deductible applies to damage to the home’s structure or personal property.

The deductible can be calculated as a fixed amount or as a percentage. For example, if the deductible is a fixed amount, such as $500, and the insured damage is $5,000, the first $500 is the homeowner’s responsibility, and the remaining $4,500 is the responsibility of the insurance company.

In the case of a percentage deductible, the homeowner’s deductible would be a percentage of the home’s insured value. In the example above, if the home is insured for USD 100,000 and the policy has a 1% deductible, the homeowner would have to pay for the first USD 1,000 of the damage. The remaining $99,000 would be paid by the insurance company.

*Tip: If you want to save a few bucks, increase your deductible (the amount you have to bear yourself in case of a loss). Insurance premiums depend in part on the amount of the deductible. The higher the deductible (the amount you have to pay yourself), the lower the premium. You pay less if the deductible is lower, but your annual premium is higher.

2. The Amount of Insurance Coverage

Owners must determine the amount of their coverage: Actual Cash Value (ACV), Replacement Cost Value (RCV), or Guaranteed Replacement Cost/Extended Coverage.

A. Actual Cash Value:

If the owner makes a claim, the LCA coverage only covers the value of the damaged property that had value at the time of the damage or theft, up to a certain limit. For example, a new bicycle purchased three years ago for $1,000 is worth less today. You may have to spend $1,000 to replace the bike, but the LCA coverage only pays up to a certain limit, with the amount the owner has to pay for the deductible deducted from the bike’s current value.

B. Replacement Cost Coverage:

Replacement cost coverage pays the actual value of the lost item, less the deductible, up to a certain amount. In the above example, the insurer would pay the replacement cost of the same bike, less the deductible, up to a maximum amount.

C. “Guaranteed/Extended Replacement Value”:

Depending on the state, insurers may offer policies with guaranteed or extended replacement value. These policies offer higher insurance coverage but for a higher annual premium. Guaranteed replacement costs are paid for rebuilding a home before the disaster, whether or not those costs exceed the coverage amount. For example, if a disaster increases the price of building materials and the cost of rebuilding a home suddenly increases, it will cover those costs. However, the costs of updating building rules are not covered in most cases. Homeowners must apply for additional coverage for these costs.

Another option is extended replacement cost insurance. This option extends the homeowner’s insurance by a certain percentage for rebuilding the home. For example, if the homeowner has a $100,000 policy at a 20% rate, in addition to the $100,000 for rebuilding the home (minus the homeowner’s deductible), the insurance company would pay an additional 20%; in this example, $20,000, for rebuilding the home.

*TIP: LCA is less expensive than the annual premium. Replacement cost coverage costs more than the annual premium. However, keep in mind that the insurance company will pay a higher amount. If you have replacement cost coverage in case of a claim. Also, ask your insurer or representative if you have any valuables, as they may only be covered up to a certain amount. For example, you may need additional insurance for engagement rings or expensive electrical appliances. Check the maximum amounts for certain items in your policy.

How can I save on home insurance premiums?

Suppose you buy your home insurance from the same company as your auto liability insurance. In that case, you usually get discounts on certain policies (you can also get discounts on other types of insurance, such as life insurance and boat insurance). Some companies also offer discounts for installing security devices such as smoke detectors, burglar alarms, and automatic payments.

Additional premium discounts may be available. So ask your household insurer about your options when you request a quote. If you’re looking for the lowest rates, get quotes from at least three companies before deciding.

About Author

Lily Poole is a Property and Home Insurance officer by profession. She is pretty well experienced in the landlord insurance broker and accounting field and has an impressive profile in the training and development industry.