A standard HO3 policy provides for full repair or replacement cost settlement on the dwelling provided that you are insured at 80% or greater for the full replacement cost (RCV) of the dwelling.
That is called co-insurance.
What does that mean? Example 1: Full RCV of the dwelling(1): $250,000 Insurance Policy limit on the dwelling: $300,000 Co-insurance is met at 120% (probably over insured) Example 2: Full RCV of the dwelling(1): $250,000 Insurance Policy limit on the dwelling: $225,000 Co-insurance is met at 90% Example 3 Full RCV of the dwelling(1): $250,000 Insurance Policy limit on the dwelling: $200,000 Co-insurance is met at 80% Example 4 Full RCV of the dwelling(1): $250,000 Insurance Policy limit on the dwelling: $180,000 Co-insurance is not met at 72% so replacement cost does not apply.
(2)

1. Remember that you are not insuring the value of the land or the cost of excavations, footings, foundations, piers or structures that support all or part of the dwelling, so those costs are not figured into the 80% replacement cost value.
   Also the insured value should be reviewed annually to adjust for inflation.
   Some policies include an annual inflation adjustment.
   
2. If the co-insurance is not met then the amount payable for repair or replacement is the greater of the ACV or the proportion of the cost to repair or replace which the total amount of insurance in the policy on the dwelling bears to 80% of the replacement cost of the building.
   In this example that would be 90%.
   

Don't forget that your deductible always applies as do all applicable policy limits.
Please visit http://www.
reclaimsinc.
com for additional information and related topics.