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Ask the Home Insurance Expert

I have a $1 million home insurance policy. The insurer says in the event of a total loss, I would receive the entire amount, even though my home's market value has fallen to $750,000. Would I really receive the entire $1 million?

Yes, if your home was destroyed by a covered peril, such as a fire, the home insurance policy would pay the full insured amount, minus the deductible.

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You're confusing the market value of the home with the insured value, a common misconception. The amount of home insurance should equal the cost to rebuild the home. Just because the market value has declined in today's sluggish housing market does not mean the cost to rebuild the home has decreased. A good insurance agent should be able to advise you on how much insurance to buy. Remember, the replacement cost equals only the rebuilding costs--not the land value.

Besides the cost to rebuild, a standard home insurance policy would also pay a certain percentage for personal possessions lost in the disaster.

Did you buy actual cash value coverage or replacement cost coverage for your home's contents? This is a key point. Actual cash value coverage reimburses you for the actual value of destroyed items, taking depreciation into account. Replacement cost coverage pays for purchasing new items. Check your policy for details.

Keep in mind that standard homeowner insurance policies have limits on certain valuables, such as fine art and jewelry. You can buy additional protection for those items through a floater or endorsement to the home insurance policy.

For more, see Home insurance basics.

Last updated: Nov. 24, 2011
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