If you are an Arizona homeowner, It is important that you choose an insurance agent that will work with you to make sure you have the proper amount of insurance protection for your home. Whether you’re purchasing a new property or you’re simply reviewing your current home insurance policy, it pays to have a clear understanding of your coverage amounts and options. During the process, you may hear a few terms tossed around that can make it difficult to know which type of policy is right for your needs. Market value and replacement cost are often used in the same sentence, and while both terms are used to define the value of a home, they are not the same thing. Keep reading to learn more about the differences between market value and replacement cost coverage — and which policy term limits are best for your home.
Replacement Cost vs. Market Value: Which is the Right Choice for Your Home?
In most all cases, replacement cost is what you should insure your home for. Let us explain. When you purchase a homeowner’s insurance policy, there are a number of factors to consider. One of the most important decisions you’ll make regarding your home insurance policy is just how much coverage fits your individual needs. Understanding which options are available to you will make it easier to enjoy peace of mind and know that not only will your family be safe, but your financial future will be protected as well.
What Does Replacement Cost Mean?
When you hear the term replacement cost, your insurance agent is talking about the actual cost that would be necessary to replace your home after a catastrophic accident like a fire. If you choose to insure your home at the replacement cost value, your provider must reimburse you for the cost of rebuilding your home to the previous specifications. At Imes Insurance Associates, we use Replacement Cost Estimators to help calculate the appropriate amount of coverage for your needs. This means there’s no need for second-guessing or “what-if” scenarios that will prevent you from investing in the proper insurance limits to protect your home and rebuild after an accident.
What is Market Value Coverage?
The market value of your home is based on the estimated price you would get if you decided to sell your home right now, on the open real estate market. When your insurance provider mentions market value, they are not only including the price you would get for your home in a sale but the land that your home sits on as well. To determine the market value of a home, many factors come into play. Some of these may include:
- How close your home is to good schools in the area
- The availability of similar homes in the neighborhood
- Local crime statistics
- The size of your lot
- And more
For most homeowners, insuring your property at market value is a big risk. For example, if you were to insure your home at a market value cost of $325,000 but the replacement cost is estimated at $425,000, you could be left to make up the $100,000 difference out-of-pocket after a fire or accident. If you are unable to come up with the additional funds on your own, you may be forced to rebuild a less expensive home. Additionally, if you are found to be underinsured at the time of a partial loss, you may be penalized by the policy’s co-insurance factor.
Contact Imes Insurance Associates Today
Interested in learning more about your home insurance coverage options? Don’t get caught without the right level of insurance protection when you need it the most! Instead, reach out to our friendly independent insurance agents today. Give us a call at (480) 820-2020 and be sure to request a free quote.