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Homeowners Insurance Policy Limits

Will your policy replace your home if it is totalled?

This depends on whether your policy is a replacement cost value policy or an actual cash value policy. If your policy is an actual cash value policy, it will not. California courts have decided that actual cash value, unless otherwise specified in the insurance contract, is the fair market value. Fair market value can be loosely defined as the amount that a knowledgeable, willing buyer would pay and that a knowledgeable, willing seller would take for an item, neither being under unusual pressure to buy or sell. Insurers are permitted to provide an alternate definition of actual cash value in the policy if another method of determining value is to be used.

If you have a replacement cost policy, the chances that you will be able to completely rebuild your home are better, but there are many types of replacement cost policies, so you need to be careful. A policy cannot be sold as a "guaranteed replacement cost" policy unless it will pay to completely rebuild the home. Other types of replacement cost policies will pay your policy limits, plus a certain percentage above those limits. Some policies do not have building code upgrade (ordinance or law) coverage. Cities and counties periodically change their building codes. Unless your policy has this coverage, your insurance company may not pay for changes you may need to make to the structure of your home to bring it up to current building codes.

Your insurer or agent should assist you in establishing a limit that is adequate to rebuild your home. It is important to update that limit periodically to maintain a limit that reflects current construction costs. Ask your insurer or agent if limits are automatically reviewed or increased.

Read your policy carefully and understand the coverage it provides. If it is not clear, contact your agent or company. You can call our Consumer Hotline for further clarification and confirmation.

In short, there is no substitute for reading your policy and your renewal declarations carefully. Discovering after a loss that you did not have the right coverage is not a situation you want to experience. Your insurance policy is a contract. In the event of a loss, the contract language will prevail. Anything promised verbally or representations not documented in writing will be difficult to prove.

For more detailed information on residential claims, please see the CDIís Residential Property Claims Guide. This brochure helps you navigate the claims process and discusses hot topics such as water damage, mold, and replacement cost.

If you only shop by comparing prices, you are doing yourself a disservice. Your home is one of the most important purchases you will make. Take the time to get the facts before you purchase insurance to protect it.
Insurance Info:

Auto Insurance - What's covered? Auto Insurance Terms
Auto Insurance Tips

Home Insurance - What's covered?
Home Policy Limits
Home replacement
Homeowners Insurance Terms
Condo Insurance