Look before you leap into a policy

All homeowners insurance isn’t created equal. That’s why it pays to review your coverage every year to ensure your policy meets your evolving needs. Begin by understanding the types of coverage available.
Actual cash value coverage reimburses you for the value of your home based on its current condition, explains Marjorie Young, senior vice president at E.G. Bowman Co., a New York City insurance brokerage. If your home was built 10 years ago, you’d receive only the depreciated value of decade-old windows, cabinets, appliances, and so on.
Most insurers recommend the more comprehensive replacement cost coverage. With it, says Young, you’ll be reimbursed for the amount it will cost to rebuild your home like new with the same kind and quality of materials. Depreciation doesn’t factor into the settlement equation.
To get the full benefit of replacement coverage, you need to purchase enough insurance to cover the total cost to rebuild your home, excluding the value of the land. Many people make the mistake of insuring at the market value, says June Walbert of USAA Financial Planning Services in San Antonio. But the amount you could sell your home for today isn’t necessarily the same as how much it would cost to rebuild.