How Much Home Insurance Coverage Do You Need?

To decide how much coverage and policy limits you need, you’ll need to understand the importance of replacement costs vs. actual costs:

• Actual cash value (ACV) – This method would reimburse you for your lost or damaged possessions only after accounting for the age of each item and discounting for the wear and tear – or the depreciation – that has occurred over the years to lessen its value. Usually, the ACV is lower than the market value, but premiums tend to be cheaper.
• Replacement cost value (RCV) – This would replace your possessions with similar items at their current market value, so it does not factor into depreciation. The downside is that the annual premiums for RCV policies tend to be about 10 percent higher than ACV ones. To make sure you get enough for reimbursement, your coverage should equal the full RCV of your home.

The market value, which includes the price of your land, depends on the real estate market. If your dwelling coverage drops below 80 percent of the RCV of your home, your insurance company may reduce the amount it will pay on a claim.
As you shop for a quote, our agent will ask for some basic information about your house, such as:

• Where it’s located.
• The square footage.
• When it was built.
• The type of construction.
• Roof type and age.
• Number of bedrooms, bathrooms and stories.
• Garage type (if any).
• Foundation type.
• Whether it has security systems, such as burglar alarms and smoke detectors.
• Type of heating and air-conditioning systems.

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