In home insurance, the value of structure is not important as there are more pressing and important considerations. The value of structure is just the cost of construction of the hose. This value can be given by a civil engineer or an architect. However the insured value should be much more than the value of structure.
In arriving at the value of structure, the cost of land and the premium on it are not taken into consideration. It is not the value of structure but the price of the home and the replacement cost that matters.
There are three ways in which valuation of a house is done for the purpose of insurance:
- Replacement Cost,
- Guaranteed Replacement Cost, and
- Actual Cash Value.
Replacement Cost – In this type of settlement for loss, repair or replacement of the damaged property is done up to the coverage amount you’ve purchased.
Guaranteed Replacement Cost – This type of loss settlement is the best as it pays for the full cost of repairing or replacing the damaged property without a reduction for depreciation. There is no limit for expenses. Therefore the insured is protected against increase in construction costs. This coverage is quite an exclusive type and is not available in all states of US. Some companies also limit the coverage to 120 percent of the cost of rebuilding.
Actual Cash Value – This is the most popular form of loss settlement. In this the insurance companies pay up to the replacement value of the damaged property less depreciation.