For years, conventional wisdom recommended homeowners purchase "guaranteed replacement" coverage with their policies. With this clause, your insurance company would replace your home if it were destroyed. But, according to the Insurance Information Institute, major insurance companies such as Allstate, Farmers and State Farm have discontinued or are doing away with such coverage. Of the largest U.S. insurers, Chubb is the only one that still offers guaranteed replacement coverage. The coverage has been replaced with cash-value policies (which are called Homeowners-3, or HO-3), meaning that the insurance only pays the amount you are insured for. If, for example, your home is insured for $100,000 but it costs $125,000 to replace it if destroyed, the $25,000 comes out of your pocket. The institute suggests that you carefully examine your current policy and call your agent to make sure it covers your costs in today's market. Also inquire about an inflation-protection endorsement, which automatically increases coverage based on inflation.
Where to Find It: Insurance Information Institute
110 William St.
New York, NY 10038
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