Why do I have to insure my house for more than it's worth?

It's best to insure your home for its full replacement cost. Insuring below this amount becomes a problem when a covered loss occurs. The settlement for partial structural damage may be reduced according to the current policy dwelling limit versus how much you should have had. Payment for a total loss cannot exceed the dwelling limit. Your claim settlement may not be enough to repair the damage or rebuild.

Inflation and supply-chain shortages impact the cost of building materials. As a result, many homes are underinsured these days.

Discuss your dwelling limit concerns with a local agent. Confirm the insurer has accurate information on your home's square feet, exterior construction, roofing materials, flooring, fireplaces, attached garage, deck, and custom features. A room addition or extensive remodeling work increases replacement cost.

Traditional homeowners policies have a co-insurance clause that identifies how much dwelling coverage is necessary to avoid a reduced loss settlement. Eighty percent of the home's replacement cost is common. However, extra endorsements like guaranteed or extended dwelling replacement cost require 100% of the home's replacement cost.

Other dwelling valuation methods have different purposes. For eample, market value is a real estate term for the current value of your home if you were to sell it. The appraised value is a professional's opinion of the property's value at a specific point in time. Actual cash value (ACV) is a figure that considers age, wear, and tear.