Owners should be aware of how rising building costs and changing rules can affect their home insurance.

Date published: 4/30/2006

By KATY HERSHBERGER

Homeowners may be surprised to know what their insurance companies will, or will not, replace.

"Many people just don't read what their insurance company sends to them," said Carolyn Gorman of the Insurance Information Institute.

Insurance companies offer a number of different options for protecting a homeowner's house or possessions.

Replacement-cost coverage will pay for home repairs or replacement of its contents, without a deduction for depreciation, up to the amount the home is insured for. For example, if your home is insured for $100,000, the insurance company will spend up to $100,000 to repair or replace it.

An extended replacement-cost policy will pay an extra amount over the limit, usually 20 percent to 25 percent, to account for increased building costs. Thus, you could receive an extra $20,000 to $25,000 to rebuild that $100,000 house.

A guaranteed replacement-cost policy gives a homeowner the highest level of protection. This type of coverage pays whatever it costs to rebuild a home as it was before a disaster.

Actual cash value covers the cost of items in the home, minus depreciation. Some companies also offer replacement-cost coverage on personal property, and will fully replace possessions without a deduction for depreciation.

"Replacement-cost coverage costs a little bit more than actual cash value, but if you can afford it it's a good investment," Gorman said.

In the past 15 years, insurance companies have moved toward extended replacement coverage instead of guaranteed replacement coverage, Gorman said. According to her, the few that still offer guaranteed replacement-cost policies include Chubb and Amica.

Nationwide offers extended replacement coverage with an addition of 20 percent, according to agent Rodney Oberly. Nationwide also offers guaranteed replacement-cost coverage up to 75 percent of the value of the home--that is, $75,000 on a $100,000 house.

"If you had a dining room suit that was 10 years old," Oberly said, "you paid $1,000 and it now costs $1,500, that's what we would pay."

State Farm also offers extended replacement coverage with a 20 percent addition.

It is important to remember that home renovations may change the value of a home so that it will not be fully covered by its previous policy.

The price you pay for homeowners insurance can vary depending on your individual circumstances. Here are a few tips from the Insurance Information Institute to keep costs low: Shop around: Talk to several insurers to get quotes and information about service. Raise your deductible: Increasing your deductible could translate into lower premiums. Use one insurer: Most companies offer a discount if you buy both your home and auto policies from them. Upgrade safety: Insurers often offer discounts for fire extinguishers, smoke alarms, burglar alarms and deadbolt locks. Quit smoking: Some insurers reduce premiums for nonsmokers. Pursue group coverage: Find out whether the company offers discounts for members of a certain group, such as a business association. Stick with your insurer: Most companies will reduce premiums for long-term customers. Check your possessions: Review your coverage and compare it with your possessions at least once a year.

Date published: 4/30/2006