When it comes to home insurance, there are a lot of things that can get a little…confusing. It’s like it’s a different language – one that corresponds to a subject that they somehow don’t teach in schools. One aspect of insuring your home that might have raised a few questions is finding out how much home insurance you need. Do you need enough insurance to cover the market value of the house or the replacement cost of the house? And, well, what’s the difference? We’re going to explain why these two values are so different and explain why insuring your home for its replacement cost is essential.
What is your home’s market value?
The market value of your home is the amount that someone would reasonably pay for your home in today’s, well, market, including the cost of the land that your house sits on. So, it’s based on what a buyer would be willing to pay for the house.
What is the replacement cost of your home?
The replacement cost of your home is the amount that it would cost to completely rebuild the home from the ground up like you would have to do if it were destroyed by a fire or another loss. That means taking into account costs like the building materials and the expense of the contractors’ labor. There are a lot of additional costs that go into rebuilding a home that’s been destroyed by a loss, so it’s important to make sure that you have enough insurance to account for those expenses.
Get a quick homeowners insurance quote today and get the coverage you need to protect your house.
Why should I insure my home for its replacement cost value?
Here’s the thing:
The market value of your home, the amount you paid for the house, and the amount owed on your mortgage aren’t necessarily an accurate reflection of how much it would cost to rebuild your home if it were burned down or if it were destroyed by another loss. And if you think about it, if you did have a fire and your house burned down, you would need insurance to cover the cost of putting the home back to the way it was before the loss. (And as we said, that amount isn’t necessarily the house’s market value or what you paid for the home.)
Going by the market value or the purchase price of the home and the land probably won’t get you the true amount of insurance you would need to rebuild your home. So, when you’re getting home insurance or shopping for quotes, plan to get insurance relative to the replacement cost of your home to ensure that your coverage accurately reflects the expense of putting your home back to rights after a loss that results in destruction. Though it might seem like it makes sense that you should get home insurance based on what you paid for the home, that’s not the best strategy.
Remember, it’s crucial to have enough home insurance to protect your house. It’s one of your biggest-ever investments, after all.
Keep your agent posted about significant changes to your house.
If you’re going to be doing some home improvements or renovations, be sure to keep your agent informed. The changes you make to the house might affect the house’s replacement cost, meaning that you would need to adjust your home insurance limits accordingly. It’s a good rule of thumb to keep in contact with your insurance agent and let them know about any significant changes to your home or any life events that could affect your insurance needs.
So, that’s the difference between your home’s market value and your home’s replacement cost value. Your home’s market value might not give you an accurate reflection of the amount of home insurance you actually need. It’s important to insure your home for its replacement cost value, which is the amount it would take to completely rebuild the home if it were destroyed by a loss like a fire. You need your insurance to reflect the cost it would take to put your home back to the way it was before the loss.
We can help you figure out what the right limit of home insurance for you is, and we can help you get quotes for your insurance. We’re here to help you get great coverage for a great rate. Have insurance questions? Great – we have answers! Get started with your home insurance quotes by filling out our online form or giving us a call today.