Home Owners Who Can Make Do With Cash Value Home Insurance Policy
When buying home insurance, you can either opt for the cash value or replacement value type of coverage. The general belief is that a cash value policy is the inferior of the two because the cash may not be adequate for rebuilding a damaged house. However, each form of coverage has its advantages and disadvantages, and there are even a few homeowners who will be comfortable with the cash value policy. Here are a few examples of such homeowners:
You Own a Tiny House
The main reason for buying a replacement-value policy is that conventional homes are extremely expensive to build. This also means that their appreciation (in terms of building costs) can result in thousands of dollars after a few years. Few people have enough money in their bank accounts to pay the difference between the insured and actual cost. Tiny homes, on the other hand, are considerably less expensive than conventional homes. This means you may be able to build a tiny with just a little help from your insurer; the insurance company doesn't have to foot the whole bill.
You Don't Have a Mortgage
If you buy a home on a mortgage, the insurer has a say on the kind and amount of insurance coverage you must buy for it. The insurer wants to be certain that there will be adequate funds to rebuild the property if it's damaged. Your mortgage lender is, therefore, likely to insist on the replacement cost coverage, especially if the cash value seems relatively low. However, if you have repaid your mortgage or bought the house on cash, you can buy the cash-value policy if you have enough savings to top up the difference in the case of damage. This may work, for example, if you have a small home and can afford to buy a similar one if the current one is damaged.
You Own an Old Home
The replacement value policy promises to rebuild your home to the same pre-damage standards using the same materials and fixtures. This also means that its premiums will be calculated using the costs of those standards and materials. This may not work for an old home whose architectural details and materials are costly, complicated, or even impossible to replicate. For example, some old homes were constructed with materials that are n o longer in production today. If that's the case with your home, then there is no use buying the replacement value policy because it may not even help you rebuild your home to its pre-damage status.
For more information, talk with a company that specializes in home insurance, like DJM Insurance Agency.