This coverage is more expensive than actual cash value coverage. Insurance companies usually require an amount of insurance equal to at least 80 percent of the full-replacement value of the home. When determining the full replacement cost of a home, figure the actual cost of building a home of the same type and quality, she said. This cost is not its market value or selling price. Depending on the real estate market, the selling or market price could be higher or lower than the cost of replacing the home.
Insurance agents can help figure replacement costs for dwellings.
An inflation rider is usually available for an extra charge to provide automatic increases in coverage to keep pace with inflation. If the coverage is not for the full 80 percent or more, only a portion of the loss would be covered, depending on the percentage of coverage that was purchased. Inadequate coverage can prove to be very costly in the event of a loss.