Unfortunately, many of us buy homeowner's insurance in a rush. That's because actual cash value has cheaper premiums than replacement cost. But there's another major difference between these types of coverage that can make a decision based only on price seem shortsighted. HO-B policies protect a home and its contents from damage caused by fire and smoke, windstorms and hail, vandalism and theft, and other named perils. If any of those calamities damage your home and personal property, an actual cash value policy pays a specific amount based on the depreciated value of what's been damaged or stolen.
Some people can self-insure their homes and pay for repairs out of pocket.
But most of us can't, so sit down with your insurance agent a couple of months before it's time to renew and go over what type of coverage you have. Prepare by doing homework To calculate the replacement cost of your home, insurance companies look at home construction costs in your area and consider your home's square footage, amenities and built-in features. There is no standard way to arrive at this value, but you can check an agent's work by doing your own rough estimation. Call contractors who have built or renovated homes in your neighborhood recently and ask them about their costs per square foot. The figures they give will be different, since it's cheaper to build a new home than to fix up an old home.