Article: Does Your Homeowners Insurance Policy Have a Replacement Cap?

Plan & Learn: Insurance

Many consumers assume that if their house is completely destroyed, their insurer will pay whatever it takes to rebuild it. Most insurers, however, set a limit on replacement costs. Typically, this cap equals the replacement value stated in your policy plus 25%. Thus, if your policy pegs the replacement value at $200,000, the insurer will pay no more than $250,000 to rebuild your home.

But say a major storm blows through your area, destroying numerous homes. Construction costs could climb as materials become scarce and contractors are in high demand. That $250,000 may be insufficient to cover rebuilding a house like the one you had, and you'd be stuck with paying the extra costs.

Here's an important tip:

Check the replacement cap in your policy. If you want a policy with no limit--guaranteeing to pay whatever it costs to rebuild--you'll have to purchase a special policy, available through a few insurers.

Copyright 2008 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.