Home Insurance

Why Is My Home Insured For More Than It’s Worth?

By August 17, 2011 No Comments

My home is worth $275,000. Why does my insurance company want me to insure it for $375,000

Comparing market or real estate value of a home and Replacement cost of a home is like comparing apples and oranges. Market value is the price for which you could sell your home. Market value takes into consideration: land value, neighborhood, comparable sales, and more.  Replacement or reconstruction cost is the amount of money it would take to rebuild your home, with like kind and quality, at today’s costs. Replacement cost reflects the cost for building materials, code compliance, demolition, construction labor, and more.

In the current economy, many people are under the assumption that construction costs have reduced as much as property values. This is simply not the case. The fact of the matter is, today, you can buy an existing home for much less money than it would cost to build that very same home.  Although you may hear from a friend that they got someone to do some work for “super cheap,” this is the exception to the rule. Contractors’ overhead hasn’t reduced much, and cost for building materials hasn’t decreased dramatically either. Contractors are just like everyone else, they need to put food on the table, and I don’t know many non-profit construction companies out there.

The bottom line is, if you’re not sure, give us a call to conduct a current replacement cost analysis of your home.  The amount of coverage you need, should be based on the true reconstruction costs of your home, regardless of current market value.

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