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Market Value vs. Reconstruction Value

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Ensure that your homeowners policy limits correspond to the cost to rebuild in case of a natural disaster, whether it is a wildfire, hurricane or flood.

Unlike a home’s resale value (which includes the cost of the land), the cost to rebuild is based on the amount needed to hire a contractor plus building materials and other additional costs. Replacement cost insurance covers the cost to replace or repair a home with materials of the same or comparable quality. For the purposes of coverage - and unlike market value - replacement cost policies do not include the value of any land and is determined based on the amount needed to hire contractors and purchase materials to repair a home or construct a replacement. 

Purchase Adequate Coverage 
You decide how much coverage to buy for your home, but Marshall & Sterling recommends purchasing coverage at least equal to the estimated cost of rebuilding your home.

How Does this Differ from Market Value? 
The market value of your home is the amount a buyer would pay for your home, including the land, no matter how much rebuilding would cost.

What is Replacement Cost?
Replacement cost is the rebuilding cost necessary to repair or replace the entire home, including construction costs. This cost is different than the following:

  • The market value
  • The purchase price or the cost of the land
  • The amount owed on a mortgage

How do I Know Replacement Cost?
Get an estimate of the replacement cost of your home from a reputable builder.

Home Improvements
When making a major change, let us know specifics. For example, if you’re replacing a standard bathtub with a whirlpool tub, or if your new countertops are made of marble, your home improvements could add enough value to your home to justify reexamining your coverage limits.

We’re Here to Help
Have other questions or doubts? Marshall & Sterling can assist in helping you understand the problems associated with being underinsured.