If you are you buying a home in Missouri, you’re not through shopping when you put in an offer. Finding the right insurance policy is an easily overlooked but crucial step in the home-buying process–but it doesn’t have to be a hassle. Do yourself a favor and learn a little about the major types of coverage available. It’ll make the shopping and decision-making process a lot easier. Keep reading for a simple explanation of the biggest decisions you’ll have to make as you start collecting quotes!
Replacement Cost vs. Market Value Home Insurance: What’s the Difference?
When shopping for home insurance, your biggest decision (aside from selecting the right insurance agent) is choosing the right amount of coverage. While your lender may only require what you paid for your new home, you might want to take a closer look at what you would actually need in the case of a total loss.
Market Value Coverage: Market value coverage, or sometimes referred to as ACV (Actual Cost Value,) is an amount that one could expected to sell the home for on the open market beforehand. Your insurance company will use current market information to estimate the value of your home, and that’s the amount your lender will likely require as minimum coverage.
Replacement Cost Coverage: With replacement cost insurance, if a covered peril destroys your home, you’ll receive enough money to rebuild from the ground up–to a point. Replacement cost coverage does have a cap, although you can pay more for extended replacement coverage (which covers as much as 20-25% more than the insurance company’s estimated rebuilding cost) or for guaranteed rebuild coverage (which guarantees that even if very expensive unforeseen issues come up, the full cost of rebuilding will be covered).
For most homeowners, replacement cost coverage is the best bet; it’s more thorough coverage that helps make sure you’ll be able to restore your standard of living if disaster strikes. But for older homes with unique, hard-to-replicate features (like antique woodwork), the cost of a replacement coverage policy might be prohibitive. In those situations, a market value policy might be a better option. Keep in mind that if you choose a market value policy for your home, you can still opt for replacement cost coverage when it comes to your personal property–all of the costly belongings inside your home.
Major Categories of Home Insurance
On a broader level, you’ll also need to choose between a few major types of policy. For most single-family homes, these are your most likely options:
HO-1: This basic insurance policy covers you against ten named perils, including risks like fire, smoke, damage from automobiles, vandalism, and theft, and several others.
HO-2: A broader insurance policy, this type of home insurance protects against 16 specific named risks.
HO-3: This is the most popular type of home insurance policy today. It protects against all risks except those specifically excluded by your policy. Exclusions will vary depending on your specific policy, so go over everything with your agent before you sign.
HO-5: The broadest type of coverage homeowners can purchase, covering everything except excluded perils, including your personal property.
HO-8: Specifically designed to cover the needs of older homes, including historic homes.
Have questions? We’re here to help. Feel free to call us or stop by one of our locations to talk to us in person. We’d love to get a few quotes for you and help make sure you find the perfect policy to fit your budget and protect your home.