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R&R Insurance Blog

Homeowners: Replacement Cost vs. Market Value

Posted by the knowledge brokers

Most insurance companies insure homes based upon the cost to rebuild the home (replacement cost), not market value.

"Market value" isn't the cost to rebuild

The cost to rebuild often differs from what you paid for your home, or what you might pay for a similar home in your area. Market value is not used to determine the coverage amount needed for replacing your home. Market value can be affected by many factors, which have nothing to do with what it would cost to rebuild, such as:

  • Location of your home
  • Economic conditions
  • Value of the land

It's important to know that rebuild costs for insurance purposes can also differ from mortgage requirements, tax assessments, and other appraisals of your home.

Why rebuilding costs can differ

Cost to rebuild (reconstruction cost) reflects estimated construction material, labor and equipment costs to rebuild your home while maintaining the same size and quality of construction, at today's prices.

Replacement cost (cost to rebuild) can fluctuate based on aspects such as:

  • Building codes may have changed since your home was built
  • More specialized workers are needed to prevent further damage and to rebuild the home
  • Landscaping, pools, and power lines can make it difficult for large equipment to access the property
  • Materials to rebuild your home may be more expensive or hard to find

Keep your coverage up-to-date

Updates, additions and improvements to your home need to be documented in order to reflect most common changes like installing hardwood floors, updating a kitchen or bath, or adding a deck.

Wisconsin residents, contact knowledgebroker Dan Wolfgram for more information or a quick quote on your home & auto insurance!