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Ask the Home Insurance Expert

If the market value of a home is appraised at $52,000, why would an insurance company's insured value double this amount as its replacement cost? The home was built in the 1950s.

Your home should be insured for the estimated cost to rebuild it--not for the price it would fetch in today's real estate market. Since the housing market decline, many homes have lost so much value that the properties are priced well below how much it would cost to rebuild them from scratch.

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Having the appropriate level of coverage is critical to prevent getting caught short after a disaster. California, for instance, recently approved new regulations designed specifically to prevent homeowners from underinsurance. The California Department of Insurance undertook writing the rules after many homeowners suffered losses in San Diego wildfires above and beyond their insurance levels.

Your home insurance agent should be able to recommend the appropriate level of insurance and explain how the estimate was calculated. Be aware the insured value does not include the value of the land.

A standard home insurance policy covers personal belongings, such as furniture, appliances and clothing, generally up to 40 percent of the amount for which the home is insured. The automatic coverage pays the actual cash value of a damaged item--the cost of replacing it, minus depreciation. For a higher premium you can buy replacement cost coverage, which pays for replacing lost or damaged items with brand new ones.

However, home insurance policies have limits for certain valuables, such as jewelry, fine artwork, firearms and antiques, so you may need to purchase extra coverage for those belongings.

For more, see how to analyze your home insurance coverage.

Last updated: Mar. 8, 2011
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