Your home is your private sanctuary, and possibly the biggest investment you’ll make in your lifetime. Your homeowners insurance is there to protect that investment.
If you face a catastrophic loss, your homeowners insurance can cover the cost to replace your home through either replacement cost or market value. Do you know which approach you’re taking with your policy?
Market value
If you have a devastating event like a fire, market value can fall seriously short. What is market value? It’s what your house will sell for in today’s market. This varies depending on the economy, interest rates, location, school districts and many other factors that have little to do with your home itself.
If you have an ornate home with custom woodwork or expensive materials, rebuilding to its original condition could cost more than the purchase price of the home and the land it stands on. If that’s the case, you likely wouldn't receive enough from your insurance payout to rebuild your home. You’d'd probably pay lower premiums, but with significant risk.
Replacement value
Replacement value is the cost to rebuild your home as is, including debris removal. This likely would be higher than the cost of buying another home.
Permits, inspections, materials and everything needed to build a home would be required. Compare that to remodeling with the same materials you used to finish the basement a few years ago. Building costs may have increased, and replacement value considers those costs.
Replacement value also considers factors you may not have considered. For instance, if your loss was due to a community catastrophe, like a wildfire, building materials may be in short supply and cost more than normal. When an entire town is damaged, supplies are likely to be low.
The same applies to building contractors: you may not find someone who can start rebuilding your property immediately. And when you do find a contractor, they may charge more than usual due to increased demand. Your insurer will consider all of these factors when developing the replacement value of your property.
Which coverage is right for you?
Market value or replacement value? If your home is partially or completely destroyed by an unforeseen event, market value may have you paying the difference between your home's value and the cost to rebuild. That can be a surprise you never want to face.
Ask us to review your coverage. We can let you know if you’re insured for replacement value or market value. It's your best protection against costly losses and surprises.