The cost to replace is usually much higher. It is wise to insure for 100 percent of your home s replacement cost. Work with your insurer in determining the correct amount. At the very least, coverage should equal 80 percent of replacement cost. If your coverage amount falls below that level, the insurer probably won t use replacement cost as its method of computing partial losses, which are the most common kind.
Depreciation then becomes a consideration.
Then, you assume the risk of paying for whatever percentage of your home s replacement cost exceeds the specified coverage. It is often less costly to buy full coverage and assume some responsibility for minor losses through deductibles. As the cost of replacing a home continually increases, many homeowners are left underinsured because their coverage amounts haven t kept pace with inflation. Most home insurers now offer inflation protection through an endorsement to your policy. It automatically updates your coverage amounts by using multipliers devised from national indexes.