A Homeowner’s Insurance Update
There is no question that homeowner’s insurance is filled with “special terms” that are not always easy to understand. We hope to help you understand this terminology by defining it in this article. One set of terms relates to how your property is valued, including terms like “replacement value,” “market value,” and “Insurance to value.” Here are the definitions:
Your home’s market value is based on current economic conditions, school districts, the value of the land, location, and other factors. It’s what your real estate agent would probably list your home for if you put it up for sale.
Insurance to value (ITV)
Insurance to value (ITV) is the amount of coverage listed under “Coverage A” on your policy declarations page. It is often referred to as “Dwelling coverage” or “Coverage A – Dwelling”. It refers to the amount required to completely reconstruct your home in the unfortunate event of complete destruction.
Replacement Value (RC)
Replacement Value will repair or replace with like kind and quality up to the policy limit. RC is like ITV but may not be listed on your policy. That is why your policy should have coverage for the cost to fully reconstruct your home.
Rebuilding is different from buying. The cost to buy a home is different from the cost to rebuild, so you cannot rely on your home’s market value to set your insurance limits. An appropriate amount of insurance coverage will permit you to rebuild your home in the event of a total loss. That replacement value depends on the physical characteristics of your home, as well as the price of labor and materials in your area. In most areas, these costs increase with time.
We recommend completing a thorough inventory of your personal belongings. Compare the value of your belongings to the home contents, or personal property limit, listed in your policy and make sure it matches.