Market Value vs Replacement Value For Your Homeowner’s Policy
Nobody likes to think about the possibility that their home could be severely damaged or destroyed.
However, this fear is a reality for thousands of homeowners each year, leaving them to try to rebuild or repair their homes. Homeowners insurance is essential coverage that provides financial protections in this situation. But how do you know how much insurance you need?
Market Value vs. Replacement Value for Your Homeowner’s Policy
All insurance policies have coverage limits, which determine the maximum amount the insurance company will pay out in the event of a loss. When it comes to your homeowner’s insurance, determining this limit can be tricky. One common misconception is that the market value of your home is what your home is actually worth, insurance-wise. That’s not necessarily the case. Most times it is better to calculate their insurance based on the replacement cost value.
If you were to sell your home today, how much could you reasonably expect to get paid for it? This number is the market value of your home and is dependent on a number of factors. While the size, layout, materials, and finishes of your home play into this value, the market value is far more subjective.
Prospective buyers consider:
-Size and usability of the land
-Sheds and other outbuildings
-The quality of the local school system
-Value of surrounding homes
-Community amenities and features
The market value of your home also varies depending on the local housing market. The market value can be more or less than the replacement cost value of your home.
Replacement Cost Value
If your home were totally destroyed, such as by a fire, what would it cost to rebuild? This figure is called the replacement cost value. Included in this cost are labor, materials, permits, debris removal, and additional costs associated with reconstructing your home with similar materials and craftsmanship to how it was before.
Assessors typically look at:
-Roofing type and materials
-Porches, decks, garages, and other attached structures
-Heating and cooling systems
Based on replacement cost value, as many as 60% of NY homes do not have enough insurance coverage to rebuild after a loss.
Learn Your Coverage Options!
Determining Your Insurance Coverage
Most insurance experts recommend insuring your home to 100% of the replacement cost value if you can afford to do so. Market values can vary widely and change rapidly. While replacement cost values do change over time, it is a more predictable cost. By insuring the replacement cost value, you are purchasing the insurance you need to rebuild when a loss occurs. Regardless of which value is used to determine your policy limits, you should be sure to have your home reassessed regularly to be sure your insurance policy provides enough coverage for your home in today’s market.
Some policies also have the option of guaranteed replacement costs, which will pay to fully rebuild your home even if the amount exceeds your stated policy limit. This type of coverage can be more expensive but allows for increased labor costs, changes to comply with current building codes, and other expenses that may exceed the initial estimate.
Talk to a Personal Insurance Specialist!
Homeowners insurance is important coverage that allows you to rebuild if your home is damaged or destroyed. Something with that level of value deserves a thorough review. We offer complimentary quotes to ensure that you have the right coverage for your home as well as many other important pieces of your life. Give us a call today to schedule a time to sit with one of our agents.