(ARA) - If a fire destroyed your spacious four-bedroom home, complete with landscaping, home theater and wine cellar, would your insurance carrier expect you to live in a small one-bedroom apartment throughout the yearlong process of planning and building your new home? And what if the insurer limited your new home's design to a modest cracker box, because your policy only covered "insured value" rather than "replacement value"?

Then you would know that all homeowner policies are not created equal.

In the event of a loss, it's important that your lifestyle be protected and restored as completely as possible -- starting with your temporary accommodations. And when your home is rebuilt, the last thing you need is to be told there's a limit to how much you can spend to replace what you had.

How do some homeowners completely restore their houses and lifestyles while others are forced to haggle over additional out-of-pocket costs? The fact is that not all insurance policies are the same. As your life changes, your insurance needs become more complex and your old mass-market insurance policy might not be keeping pace.

In other words, as your lifestyle moves up from a discount store to Rodeo Drive, you begin to consider more than just price. The amount of choice, flexibility and value built into your homeowner's policy becomes more important.

The Replacement Gap

It is often at the critical juncture of a loss that homeowners learn their insurance has not kept pace with their home's replacement value.

"It you have owned your home for 20 years and you have the mass-market policy you first bought with that home, it's very possible your insurance has not kept up," says Mitch Ziemer, product director for Fireman's Fund Insurance Company. "Factors include inflation, value of contents, and even building codes, which may require a different kind of construction. A homeowner wants to be sure those costs are known -- and covered as long as they own their home."

Some policies insure only for actual cash value while others cover replacement costs. What's the difference? When actual cash value is used, the policyholder is entitled to the depreciated value of the damaged property. So the older the item is, the less money you may receive to replace it.

You'll want a policy that pays the complete replacement cost -- including rare and custom work. Under replacement cost coverage, the policyholder is reimbursed the amount it costs to replace the property and its contents with something of a similar type and quality at current prices.

For example, your Italian marble floors would be covered for the cost of the materials and installation -- even if these costs are higher at the time of replacement than they were for the original installation. The policy would also rebuild your downstairs home theater, your wine cellar, and even replace and replant your landscaping.

You should also seek a policy from an insurer like Fireman's Fund that provides the added benefit of a loss of use limit that is much higher than the industry standard. This coverage pays all comparable living expenses (compared to a predefined limit) you incur while your home is being rebuilt. And if you don't want to rebuild in the original location, you have the option to receive a cash settlement, which is also not offered by many other insurers. Plus, when you do rebuild, you can work with the contractor of your choice, not the insurance company's.

An additional benefit to seek in your policy is a loss of use limit that is much higher than the industry standard. This coverage pays living expenses you incur while your home is being rebuilt. And if you don't want to rebuild in the original location, you have the option to receive a cash settlement, which is also not offered by many insurers.

"To get an accurate value to assess risk, you need experts who know the market, your home, and your possessions," Ziemer says. Unlike the mass-market approach, a company like Fireman's Fund provides this kind of on-site expertise as part of the homeowner's policy.

It's this approach that serves the specific lifestyles of individuals and families with valuable assets and possessions. While perhaps a little lower in price, mass-market policies may not facilitate the concept of the individual experience, nor are they likely to provide coverage for your way of life. In many cases, they do not even insure the full replacement value of your home.

Courtesy of ARA content