Is it possible to insure a home for actual cash value if an appraisal is done?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Feb 15, 2012

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Insurance Question from Christmas, FL

Asked on 02/15/2012

Is it possible to insure a home for actual cash value if an appraisal is done? We own our home free and clear and want to get insurance for a certain amount for disaster purposes only. We have a large home, so we have been quoted a high rate--BUT, if something ever happens, we will not rebuild a home of this size as we are getting older. The rates we have been quoted are based on the square footage of our home, which results in a value that is way above what our home is worth in today's market. Please advise!

Answer given on February 15, 2012

Nearly every homeowner policy is written based upon the replacement cost of the home being insured. This is so the insurance company can get the appropriate premium for the risk they are insuring. If they let you insure for less than at least 80% of the replacement cost, then they could face a large financial loss if the home is only partly damaged.You say you are only interested in disaster insurance. However, if 1/2 of the home is damaged or destroyed in a fire, you will probably want to repair the home. The insurance company will have to pay for the repairs, but they won’t be getting the premium for the risk.You may be able to find a specialty insurance company which will let you write a lower amount of insurance. However, it probably will not cover all of the risks that a homeowner policy will cover.Maybe you should look at higher deductibles. Many insurance companies will write a $10,000, $20,000 or higher deductible. This way you can reduce your costs, and the insurance company will also be happy.

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