When it comes to home insurance, homeowners often wonder if they are required to rebuild their home in the event of a total or partial loss. This all depends on the type of coverage you have and the stipulations your insurance company may have in place. Some insurance companies offer replacement cost with no obligation to rebuild; others may offer an endorsement you can purchase to exempt you from having to rebuild, while others require rebuilding for a replacement cost policy. Always ask your agent or broker which coverage options are available.
When shopping for homeowner’s insurance, determining if you’ll need to rebuild your home in the event of a total loss is imperative. If the answer is no, replacement cost coverage may not be the best choice for your needs. Exploring actual cash value coverage is an option if rebuilding is not a priority. Be sure to ask the right questions when shopping for your home insurance to ensure you have the right coverage for you.
Types of Dwelling Coverage to Keep in Mind
Actual Cash Value
Actual cash value coverage can be a good option for those who would prefer to take their insurance money and move elsewhere in the event a total loss occurs. There is no obligation to rebuild and you can spend the money received as you see fit. However, it’s important to keep in mind that actual cash value does factor in depreciation, i.e. it is the replacement cost minus depreciation. Therefore, all items lost will be depreciated before a payout is made.
In some cases, homeowners may want to explore the option of insuring their home for full replacement value but feel that rebuilding would not be in their best interest. Some insurance companies do offer policies in which you can insure your home for its full replacement value without the obligation to rebuild. With policies such as this, a payout for the full replacement value of your home would be made in the event of a total loss. The only obligation to the homeowner is to clean up the site of debris.
Note: When choosing this type coverage, make sure you speak with your agent to ensure that the replacement cost stipulated in your policy is accurate.
Check In With Your Insurance Policy
Some insurance companies may include no obligation to rebuild directly in their replacement cost polices; other companies may have an obligation to rebuild if replacement cost is purchased. However, if you enquire about your obligations and are not interested in rebuilding in the event of a total loss, they may offer an endorsement you can add to your policy that would exempt you from this obligation.
Much like each home and the needs of each homeowner, each insurance company is unique in its offerings and coverage choices. It’s best to be armed with a list of questions and concerns you may have before visiting your agent or broker to ensure you address all your needs and purchase the coverage options that are best for your home and your family.
Looking for an accurate replacement cost estimate for your home in the event of a total loss? The Douglas Residential Cost Guide is a reliable tool that Canadian homeowners can utilize to make informed choices about their home insurance coverage. Contact us today to learn more.