Ensure you are comparing policies with the same type of payment structure – actual cash value vs. replacement cost policy.

Here are the differences:

• Actual Cash Value Policy - An Actual Cash Value policy will pay you the cost to replace the item minus the decreased value of the item. 

• Replacement Cost Policy - A Replacement Cost policy will pay the cost to replace the item at the present time, regardless of the decreased value. 

Example:

The refrigerator that you purchased for $3,000 five years ago was damaged from a lightning strike. Your insurance company determines that a refrigerator has a useful life of 10 years, and the same refrigerator today would cost $3,500. Your damaged refrigerator has 50% (5 years) of its useful life remaining since you bought it 5 years ago. 

Actual Cash Value Policy

To calculate the Actual Cash Value, you would receive from your insurance company to replace the damaged refrigerator, you would multiply the $3,000 original purchase price by 50% (the useful life remaining of your refrigerator). Your insurance company would pay you an Actual Cash Value of $1,500 to replace your damaged refrigerator ($3,000 x 50% = $1,500)

Replacement Cost Policy

If your policy is based on Replacement Cost, your insurance company will pay you the amount needed to replace your damaged refrigerator with a similar refrigerator today. The insurance company determined a similar refrigerator would cost $3,500 in today’s market. With Replacement Cost, your insurance company would pay you $3,500 to replace your damaged refrigerator.

Depending on the type of policy you select, your premium may differ. Contact your insurance agent for more coverage and cost details. For more information on the types of policies, review the Applying for Homeowners Insurance: What You Should Know Guide. 

Does the policy include Animal Liability Coverage? If you have pets, you may wish to purchase this coverage, which helps pay for medical expenses and legal costs if a guest at your home is injured or their property is damaged by your pets.

What discounts does the insurance company you’re considering offer? Insurance companies offer discounts for various reasons, i.e. age of home, having multiple policies with the same company, number of years without filing a claim, security system, etc.

Review common discounts you may qualify for in the Applying for Homeowners Insurance: What You Need To Know Guide.

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Be sure to compare the same percentage of Ordinance and Law Coverage, which helps cover the cost to rebuild your home to comply with the current building code. Insurance companies regulated by the Office of Insurance Regulation are required to include Ordinance and Law Coverage of at least 25% of the coverage amount on your home. The companies must also offer you 50% of the coverage amount on your home.

For example, if you have coverage on your home of $200,000, your insurance company must provide you with at least $50,000 in coverage to comply with the building code. It must also offer at least $100,000 in coverage. The additional Ordinance and Law Coverage may increase your insurance premium. 

Your deductible is the amount you are responsible for if you incur damage and file a claim. Typically, you will have two, separate deductibles: an all perils deductible and a hurricane deductible. 

Your policy may also include additional/optional deductibles for roof, sinkhole or water damage. Multiple types of optional deductibles may result in a lower policy premium.

Review the policy options to determine whether the lower premium justifies having separate optional deductibles.

Dwelling coverage provides coverage for the physical rebuilding or repair of your home. Review each policy to determine if the amount offered is adequate for rebuilding or repair.

A company may exclude certain damages or specific items from coverage within the policy. Review each option to ensure desired coverage or specific personal items are not excluded from the policy.

If your home is uninhabitable while it is being repaired or rebuilt, does the policy provide reimbursement for additional living expenses you may incur while you are displaced from your home? 

Does the policy offer coverage for medical payments of a guest who is injured while on your property?

For example, this coverage would likely provide medical payments for a guest who injured themselves on your stairs. This coverage does not provide any payments for pain and suffering or property damage.

Determine which structures on your property, other than your home, are covered under the policy you’re considering. Some companies exclude coverage for structures such as a fence, detached garage, or shed.

How much coverage is offered if someone who does not live with you sustains injuries on your property? Personal liability coverage provides payments for pain and suffering and property damage.

Review the policy options to ensure that there is enough coverage available to replace your personal property and contents, such as televisions, furniture, etc.

Determine if the policy covers your specialty items such as medallions, guns, expensive jewelry, furs, etc. Typically, specialty items are not covered by a homeowners insurance policy; however, the company may allow you to add an endorsement or purchase a separate policy for coverage. 

If needed, does the policy offer coverage for swimming pools, hot tubs or trampolines? Some homeowners insurance policies include coverage for these items while others specifically exclude coverage. To cover these items, you may need to purchase a separate policy or an endorsement (add-on) to your homeowners policy.

Some companies exclude or limit the amount of coverage offered for damage caused by water such as a when a pipe burst in the kitchen. Review the policy to determine if coverage is offered or limited.