If you have a homeowners policy, you can likely expect it to cover all costs of rebuilding your home in the event it is damaged or destroyed due to a covered risk. But are you sure you have enough coverage? Read about two common situations you may not be aware of — and the affordable options that can help put your mind at ease.
Extended Housing Coverage
Because reconstruction costs differ from market value, current homeowners’ policy may not accurately reflect the true costs of rebuilding your home. Extended housing coverage helps you rebuild if construction costs change and are added up to your existing policy limits.
To illustrate this concept, consider this real-life scenario. Your home is currently insured for 100% of the cost of its replacement, with the cost based on the value of your home when the document was originally written. However, a massive fire sweeps through your area and destroys your home along with hundreds of others nearby. Due to the high demand caused by the natural disaster, construction materials and labor costs have increased by 20% in your area. So your $200,000 home would now cost $240,000 to rebuild. If you have an extended home coverage of 20%, you get $240,000. Without it, you get $200,000 and you’ll have to make the difference out of your pocket or settle for a lower house than you originally owned.
Building ordinance or law coverage
If your home is damaged by a covered loss and needs to be rebuilt or repaired, you are required to build in accordance with current building codes. And since the codes have gotten tougher over the past 20 years, this could mean much higher rebuilding costs than you might expect. This is where a building law policy, or statutory coverage, comes into effect — and it can save you thousands of dollars.
Again, let’s take the example above and assume you have a $200,000 homeowner policy. With a 10% building code policy, you’ll get an additional $20,000 to apply for the new building code requirements you must meet. Without this policy option, you’d have to pay the difference to get your house back on code.
Extended Housing and Building Codes policies provide valuable protection from coverage gaps in the event of an unexpected covered event, all for an affordable annual premium. To better understand the risks, and to protect yourself from a loss that may exceed the limits of your policy, consult your most aggressive insurance advisor.
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