It is important to insure your home to replacement cost value because under certain circumstances you may be subject to a recovery amount less than what it would cost you to restore your home to its pre-loss condition. Replacement cost is the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality without deducting for depreciation.
Partial losses are the kind of loss most people suffer.
Homeowner policies specify the minimum amount of coverage a homeowner must purchase to be fully covered in the event of a loss. If actual cash value were used as the basis for calculating your insurance coverage, you would not receive the full amount it would take to replace the damaged building. For example, if your roof has a 20-year warranty and is 17 years old, there would be depreciation for the age and condition of the roof. This enhancement automatically increases your policy limits by a selected or stated percentage periodically, usually every three months. You also should check with your agent or insurance company at least once a year to make sure that your policy provides adequate coverage.