"Replacement Cost" vs. "Market Value" to Consider on your Homeowners Insurance Policy

Friends of ours had their home destroyed by fire at Laguna Beach years ago.  They were thankful to have used "REPLACEMENT VALUE" homeowners insurance coverage, and their new home was completely rebuilt after the fire with funds made available through insurance.

 

Whether to use "Market Value" vs. "Replacement Cost" is important for your homeowners insurance policy.

Real estate prices and values have dropped in many areas recently.  So you might consider saving money on premiums and switching to "market value" on your homeowners policy.

"Market Value" reflects what a buyer would pay for a home if it were on the market right now. 

 

"REPLACEMENT COST" instead measures what a contractor will charge to rebuild it if it's destroyed.

"Replacement Cost" value is what you will need if your home is damaged or destroyed. 

While home prices have fallen, construction costs are high, with building materials and labor costs up, with fuel prices higher.  So it might cost more to rebuild or repair a damaged house than the house is worth in today's real estate market.

Homeowners and buyers should talk with their insurance agent at least every two years to get an updated replacement cost analysis and adjust homeowners insurance coverage accordingly.  

Be careful with this.  The real estate market is changing, with prices up and down.  REPLACEMENT COST is what the homeowner will want if there is property damage or destruction.

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This is for information only.  You as homeowner or buyer should consult with your insurance agent about what's needed for your homeowners insurance situation.

Harrison K. Long
REALTOR and broker associate, Explore Group Properties, Coldwell Banker Previews
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