For first time buyers, purchasing homeowners insurance can be challenging. There are a variety of plans with many different advantages. One of the choices you’ll have to make is what type of coverage you want to protect the home. Buyers have a choice between the actual cash value of the home and its replacement cost. Knowing more about the details of each option will help you communicate your needs to an insurance agent. 

Actual Cash Value (ACV)

Actual cash value homeowners insurance is known for its low premiums, which will decrease over time due to depreciation. For example, an individual purchases a house today, and a decade later, the home is lost due to a fire. Under ACV, adjusters will consider the condition that the roof, walls, and lighting fixtures tend to be after 10 years. The insurance provider then pays the difference between the cost of the home at the price the owner bought it for and its depreciated value. The homeowner would then have to pay out-of-pocket to replace the items lost and the remaining expenses to repair or rebuild the home. 

While most items depreciate, some gain value over time. Appreciation usually occurs for fine jewelry, some antiques, firearms, precious gems and metals, and pieces of art. If you have these items, tell your independent insurance agent. They can add an endorsement or floater to protect them if they’re lost or stolen. 

Replacement Cost 

The replacement cost for homeowners insurance is straight forward. It compensates how much it would cost to replace the home or item if purchased today. Adjusters do not take depreciation or value of the land into consideration. Instead, the focus is placed on the designated item. Have an appraiser or contractor inspect the home to determine its replacement cost. They will evaluate it based on the cost of the construction materials, unique or valuable qualities, or added living spaces (like a deck or porch). 

Over time, you might make changes to the home. Many homeowners remodel, install expensive fixtures, replace old windows and doors, and beautify the landscape. These changes increase either the curb appeal or the overall value of the home. After these changes, appraise the home again and update your insurance agent with the new value. Once updated, you’ll be covered for the home’s new replacement cost. 

If the house is damaged or lost, most insurance companies will pay for half of the replacement cost upfront. Complete the repairs or replacement, and send the documentation to your provider, who will reimburse you with the remaining replacement cost. 

Before going to closing, reach out to Integrity Insurance Solutions in San Marcos, TX. Their experienced agents will help protect the home you worked so hard to earn. As an independent insurance agency, they offer unbiased advice. They’ll search through the rates of many providers to ensure their clients have the plan they need at an affordable price. For more information on their homeowners insurance plans, visit their website. To schedule an appointment, call (512) 396-2211.