Replacement cost vs. Market value
Clients frequently get upset because they feel their house is over-insured. I often hear, “I only paid $150,000 for the house. Why do I have to insure it for $250,000?”
Market value is the price paid for your house. Replacement cost is the price or cost it will take to rebuild your house in the same spot, same size and same quality of construction, at today's costs in the event of a loss. Insurance companies purpose is to make you whole again, after a loss. So, they use the replacement cost valuation. These can be two completely different numbers.
For example, a home purchased in a city neighborhood, may have a market value of $120,000. The exact house, located in a suburb, may have a market price of $285,000. But, the cost to rebuild the house after a loss would be the same in either location. The insurance company is looking to insure the home for the full replacement value, not the current market value. Remember, insurance companies are required to make you whole, so they are going to pay to build you a new home, not buy one in the same neighborhood.
For insurance purposes, you should insure your home to 100% of it's replacement cost. This will ensure the ability to rebuild the entire house, the way it is now, in the event of a total loss. And, you are not insuring the land so leave this out of the replacement cost valuation of the dwelling.
Consult with us and explain your home in detail - square footage, number of bedrooms, bathrooms, kitchen, basement, fireplace etc. You may not think accuracy is your description is important, but it is extremely important. Insurance companies use a formula to generate the correct replacement cost. The coverage amount and the premium might be a bit higher, however you'll be properly insured. You do not want to find out, after a claim occurs, that your insurance is not adequate. Insuring your home for 100% dwelling replacement value alleviates that possibility.
Home Inventory
If you had a total loss at your home today, would you know what you lost? Home inventory forms are a very helpful tool in the event of a loss. Shouldn't you be made whole again? Help your insurance company to get you there.