California E&S Insurance

You do not have to rebuild the home to be paid by the insurance company. However, you may receive less than if you did rebuild. Many homeowners policies (HO-3 and HO-5) offer replacement cost on the home itself. What this means is that even though the home might be older and depreciated, if your home is damaged by a covered peril, they will pay the entire cost to fix the home, not offer a depreciated amount. However, if you don’t rebuild you will receive the depreciated amount. Here is a simple example: Assume a home has a 100 year life span and a straight line depreciation. If the home is 20 years old, it would be considered to be 20% depreciated. Exclusive of land costs, the home originally cost $ 100,000 to build, and there has been no inflation so it would cost the same $ 100K to build an exact duplicate of the home. The home is insured in the amount of $ 100K on an HO-3 with replacement cost on the dwelling. The home is destroyed by fire. If the home is rebuilt, the insurance company would pay $100,000 to rebuild the home. If the homeowner chooses to not rebuild, then the insurance company only will pay $ 80,000.

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