Homeowner insurance can be very tricky. Homeowners usually do not review their insurance policies because of the fine print. Most of them depend on the explanation of the insurance agent and because of the technicalities, hardly listen to the nitty-gritty of the clauses. Homeowners are encouraged to review their policies to understand them and possibly upgrade to a more efficient one if their present policy does not meet their needs.

Actual Cash Value Policy

There are basically two types of homeowner insurance that you can take. First is the actual cash value or ACV policy. It does not entitle the insured the full market value if the house is destroyed or damaged. The insurer subtracts the percentage for the age of the property. For example, if your French windows have a market value of $1,500 and has a warranty of 10 years and a tree falls on them, your insurance company can deduct a certain amount for the depreciated value. The insurance company can pay as low as $500 only and you have to cover the rest.

The homeowner insurance on an ACV policy can also pay you for the normal wear and tear of the home but still depending on the depreciated value of the home or the part of the home insured. This basically means that if the house is older, the insurance money that you can get from your policy will considerably be less. The actual market value of the home before the damage occurred will not be taken into consideration.

Replacement Cost Policy

This is the more popular homeowner insurance policy purchased by many homeowners. It gives the insurer the right to demand for the actual amount of the value of the repairs or replacement due to the damage or the normal wear and tear of the property. They are considerably more expensive than ACVs but it can protect the homeowner.

This type of policy will give the homeowner the full amount replacing the damaged property or portion of the house. But it doesn’t mean that the full 100% is given to you. The insurance company will give you around 80% of the total cost. If you take into consideration the French windows valued at $1,500, the insurance company will pay the whole amount minus the deductible amount for the warranty.

A replacement cost policy will give the homeowner more protection and greater entitlement when an occurrence will render the house a total loss, such as a fire or an earthquake. That’s why, homeowners are required to review what type of homeowner insurance they have and upgrade to a more beneficial coverage if they feel it necessary.