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Home Insurance – Replacement Cost vs. Market Value

Clients often ask, “Why is my home insurance coverage higher than the value of my home. Am I over-insured?”


A person walk towards a home under construction.
Image from Transport Topics. Rogelio V. Solis, Associated Press.

In most cases you are not. Your home insurance coverage reflects the calculated replacement cost for your home, based on reconstruction costs, labor and materials, to rebuild your home the way it was before the loss. Market value is the price that someone would pay to buy your home. These are often two different figures.


If your home is not valued correctly for replacing should a total loss occur, you could be underinsured. You wouldn’t have enough coverage to rebuild your home. Making sure it is properly valued is very important. Insurance companies use estimating tools recognized by the building industry to determine replacement costs at current market conditions.


Sometimes even a new home can have a higher reconstruction cost value than what you paid for it. This can happen because your home may have originally been built in a community with material discounts and labor cost effectiveness. Rebuilding a “one-off” home can be more expensive.


In today’s market, building materials have become quite expensive, in some cases. You must make sure your coverage is in line with current market conditions.


If you are unsure about your home insurance coverages, please give us a call at (203) 740-9838.


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