One of the things we always say is that home insurance seems to be the same until you have a claim. Here is an example to help explain what we mean.
We recently had a gentleman call in for a home insurance quote for a large house. We provided a him a quote and then he got a second quote for roughly $500 less per year. Fortunately, the customer called back and asked our thoughts on the second quote and here is what we found.
While most of the coverages limits and deductibles were very similar between the two quotes, the quote that was $500 less was covering the roof at Actual Cash Value whereas our original quote was covering the roof at Replacement Cost.
So why is this important?
The roof on the home was a 25-year-old roof which would cost roughly $80,000 to replace. The hurricane deductible for the home was roughly $16,000. This means that if the roof were damaged because of a hurricane and needed to be replaced, the Replacement Cost policy would provide him with roughly $64,000 in coverage for his roof replacement.
But the Actual Cash Value policy would first depreciate the roof before determining the amount of coverage available. When you couple the depreciation with the $16,000 deductible for hurricane damage, it’s plausible that if the roof needed to be replaced due to hurricane damage and the customer purchased the Actual Cash Value policy that payout for his roof could be close to zero.
So is that worth the $500 savings…. probably not.
With this example you see how these two insurance policies were seemingly the same, until we looked at a claim scenario. It is always important to ask if the policy has any uncommon coverage restrictions before purchasing the policy. Doing so could save you big money down the road if you need to file a claim.
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