Home values and construction costs are constantly changing. If your homeowner policy is based on a purchase price or an outdated valuation, you may find yourself with inadequate coverage in the event of a total loss.

What Is the Difference Between Cash Value and Replacement Cost?

Most home policies are structured to provide coverage up to a certain cash value. This sets a maximum payout limit and is often the most affordable choice with regard to premium costs. However, it may not provide sufficient coverage in the event of a major or total loss of your home. Replacement cost coverage, on the other hand, will pay to replace the structure.

Many people with cash value policies find themselves in a grey area called the home protection gap. Their homes are unlivable but they are without the funds to rebuild. Studies show that adding coverage for guaranteed replacements in a home policy can help you avoid the home protection gap.

How Does Guaranteed Replacement Cost Coverage Help?

Guaranteed replacement costs will cover the final bills for replacing damaged structures and personal belongings. That applies even when final costs go way over original estimates. Additional police riders may be needed to cover upgrades and changes to bring the building into code compliance.

The last thing you want to hear when you are faced with the loss of your home is that you don’t have enough coverage to rebuild. Choosing guaranteed replacement costs in a home policy can help ensure you don’t have to face that situation.