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Avoiding underinsurance requires the right coverage combined with the right limits. In exchange for providing generous coverage, specialist insurers invest heavily on appraisal services to determine appropriate coverage limit, which is a hard process that can create policyholder frustration, even distrust. Embracing the following principles allows carriers to manage valuations prudently, collect the appropriate premiums for the risks assumed, and delight their policyholders.

A well-constructed insurance program blends smart, comprehensive coverage options with appropriate coverage limits. Successful individuals and families with significant assets are best protected by the coverage options offered by high-net worth specialist insurers. One differentiator between those insurers and mainstream providers is guaranteed replacement cost, or extended replacement cost, when an uncapped guarantee is replaced by a hefty extension of coverage.

Define Replacement Cost

A replacement cost estimate should reflect the cost to build the home at the same location on the date of the appraisal with comparable quality of design, materials and workmanship. It should include profit and overhead for the contractors that will build the home; fees for architects, engineers, designers and other specialists required to build the home; and whatever costs are needed for the finished home to comply with current building codes. Agents and consumers should be aware if their appraisals are inflated by costs in either of these categories:

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