What Is The 80% Rule?

​The 80% rule is a popular guideline used by homeowners to determine whether they should make a repair or replace an item in their home. Generally, the rule states that if repairing an item exceeds 80% of the cost of replacing it, the homeowner should replace it. This guideline can help homeowners save money and avoid spending on repairs that may not be worth it.

Fundamentals
When acquiring homeowners insurance, you have two value alternatives. In most cases, homeowners may choose to insure their home and personal belongings for Cash Value or Replacement Cost. Actual Cash Value is the cost of repairing an item less depreciation, which is the loss in value of your home or personal belongings due to natural wear and tears.

The amount required to repair and replace your damage to the property with materials of identical sort and quality without depreciation is known as Replacement Cost. Most insurance carriers require homeowners to acquire replacement cost coverage worth at least 80% of their home's replacement cost to gain complete coverage.

How does it work?
Assume the total replacement cost of a home is $600,000. A homeowner purchases a $360,000 insurance policy. After that, a storm arrives shortly after, causing $100,000 in damage. The owner may be compensated because the damage is $100,000 less than the home insurance policy limit of $360,000. It is not the case, however.

Perhaps, the homeowner is compensated depending on how much coverage they should have had, which is 80 percent of the home's total replacement cost. The homeowner might have acquired $480,000 in home insurance with a total replacement value of $600,000. In this situation, the insurance provider will only pay 75 percent of the total damages ($360,000/$480,000).

The homeowner should become responsible for the remaining $75,000 in damages. Generally, the regulation usually only applies to home coverage, not personal property coverage. To prevent your valuables from being replaced after a disaster, homeowners should carry 100 percent of their replacement cost in insurance.

Conclusion
Proper coverage for your home is critical in protecting your home and your budget, particularly since the replacement cost value keeps changing. To understand the 80% rule, you should also consider the basics and other information that may help you acknowledge it.

At Best Insurance Group, LLC, we aim to provide comprehensive insurance policies that make your life easier. We want to help you get insurance that fits your needs. You can get more information about our products and services by calling our agency at (970) 674-5000. Get your free quote today by CLICKING HERE. Topics and coverage discussed in this article are not guaranteed, consult with your agents to determine what your policy does and does not cover. We are more than happy to help!