When it comes to homeowner's insurance, there are two different components that you need to understand. One part of your homeowner's insurance policy covers the actual physical building. The second part of your homeowner's insurance policy covers your personal belongings. Both types of coverage are wrapped up into your homeowner's insurance policy.
Part One: The Structure of Your Home
The first part of your home insurance coverage is designed to cover the actual physical structure of your home. There are three different ways you can ensure the structure of your home: replacement cost, extended replacement cost, and actual cash value.
Replacement cost coverage is designed to provide you with the money to replace your damaged property. With replacement coverage, the cost of replacing your home is not reduced for depreciation. With replacement coverage, there is usually a maximum limit that your insurance will payout. You set what the maximum coverage is for the replacement cost.
Extended replacement cost is a little different than regular replacement coverage. In addition to providing your coverage up to the maximum payout limit for your policy, your insurance will pay an additional percentage of repair costs in excess of your maximum payout limit. It is basically a boast or increases to your maximum payout level. This type of coverages allows for increased costs in construction that you would not be able to account for.
The actual cash value pays you for the real value of your home, minus the depreciation for the age of your home. With this type of coverage, you are being paid for the literal value of your home, which may be more or less than the cost to replace your home.
Part Two: Your Personal Belongings
The second part of your home insurance coverage covers your personal belongings that are inside of your home. Just like with the coverage for your home, you can choose between the replacement cost coverage, where you are given money that will allow you to replace the damaged or stolen item. Or you can choose for actual cash value, which will provide you with the value of the item, minus any deprecation for the item. Actual cash value is more common than replacement cost coverage for personal belongings.
There is a maximum amount of coverage for your personal belongings. If you have any high-value items, such as jewelry or artwork, you may need to purchase an additional rider or coverage for that particular items.
Your homeowner's insurance policy provides coverage for the actual structure of your home as well as your personal belongings. You can choose between different types of coverage that will change the way you are paid out if the structure of your home or your belongings are damaged. Talk to a homeowners insurance provider to dive deeper into these two types of coverage