An unlikely but frightening scenario to be caught in, is a house fire. A fire can do anything from causing smoke and water damage, to gutting the entire house inside and out. Though it may appear that the insurance company will pay to restore the home to its former glory, it depends on the terms of your policy what they will actually do.

Usually, replacement cost coverage is standard. What that means is that a set amount (what you were covered for) is what they will pay out. The insurance company will use the information that you gave them about the house to estimate how much it would cost to replace it in case of a fire. But that cost was calculated on adjusted numbers used at the time, or its appraised value which could be somewhat skewed years later.

Other factors will weigh into what the appraised value was at the time and what it is now, like building costs, natural or man-caused disasters (i.e., California wildfires), or even the fact that you may had remodeled or made additions to the home since you were covered and did not update your policy. If the house is an older home that has the character of being a “historic” home, some things are simply not replaceable or can’t be reproduced.

Check to see if your policy uses the words “guaranteed” replacement coverage. For a higher premium payment, there are policies out there that guarantee to pay 100% (all) of your repair or rebuilding costs without limits.

If your policy coverage term says it will pay out “actual cash value,” maybe you could keep looking for better coverage. The actual cash value will likely be nothing close to the market value of the home or the cost of repair, especially when they take off for the cost of depreciation or wear and tear.

The appraised value (what your home was worth at the time of coverage) will never be the same later on, whether disaster strikes or not; so better safe than sorry. So the best case scenario would be to get a policy that takes care of all repair and/or rebuilding expenses.