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October 4, 2023

What Are the Three Types of Homeowners Insurance?

Homeowners insurance is essential for all homeowners to safeguard their property and possessions. A robust insurance policy can help protect homeowners from covered events. A homeowners insurance policy typically includes dwelling coverage, personal belongings coverage, personal liability coverage and additional living expenses coverage. However, not all homeowners policies are created equally. Homeowners must carefully research and understand their policy because of the differences in coverage options.

Different Types of Homeowners Coverage

The following are the three types of homeowners insurance coverage:

  • Actual cash value helps cover the cost of the home in addition to the value of the owner’s belongings after subtracting the depreciation value (i.e., how much the items are currently worth, not how much you initially paid). A policy with coverage based on actual cash value is typically less expensive.
  • Replacement cost value helps cover the amount it would cost to replace the home with the exact same one in today’s market. Insurers typically recommend this policy because you can rebuild or repair your home up to its original value.
  • Extended replacement cost is an expanded version of replacement cost value and the most comprehensive option. It can pay the cost to rebuild your home, even if the costs exceed its estimated value. This policy protects the owner against inflation on materials and construction costs. It is often recommended to homeowners in areas known to experience natural disasters because rebuilding costs often increase due to demand. Insurers may offer an extended replacement policy to cover your home for 20-25% more than its replacement value. Even if you don’t live in an area prone to natural disasters, you can still benefit from extended replacement cost coverage.

How Much Homeowners Insurance Do I Need?

Determining the appropriate amount of home insurance involves considering factors such as the replacement cost of your home and personal belongings, liability coverage and any additional endorsements needed, such as flood or earthquake insurance. Your home’s value, location and local risks are crucial in determining coverage levels. Regularly reviewing and updating your policy is essential to ensure it aligns with changes in your home’s value, personal possessions and home improvements. Underinsuring your property can leave you financially vulnerable, so getting the right coverage for your situation is crucial. Contact Wiglesworth-Rindom Insurance Agency to discuss your homeowners insurance needs. We can make personalized recommendations based on your specific situation.


This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.

Categories: Home Insurance

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