Is it time to update your home insurance policy? Or maybe you’re a buyer looking to close on your very first home, but you’re unsure of how much insurance protection you need. Either way, you’ve probably heard the terms replacement cost, and market value used more than a few times. Both options provide coverage in the event of a partial or total loss of your home, but they are actually very different in terms of how they are determined and how much coverage they provide. Keep reading to learn more about the differences between replacement cost value and market value home insurance coverage.
How Much Homeowner’s Insurance Protection Do I Need?
While replacement cost value is the most popular home insurance option for Missouri homeowners, it is important to understand all your options before purchasing a policy. This is due in large part to the fact that both options provide different protection values and can affect your overall insurance premium differently as well.
What is Market Value?
The market value of your home is the estimated price that your property would be sold for in the current open market. This valuation includes your home and the land that it sits on. Some of the biggest factors that help to determine the market value of your home include local crime statistics in your neighborhood, how close you are located to good schools, the availability of similar homes in the greater Springfield area and more.
While market value coverage can be a more affordable option, most people are at risk of having incomplete coverage with this type of policy. For example, imagine that you purchase a home for $250,000 and take out home insurance for the same amount. But the replacement cost for your new home is valued at $310,000. If you were to suffer a total loss, you would need to settle for a much smaller home or furnishings such as cabinets and trim of a lesser quality.
What is Replacement Cost Coverage?
Replacement cost is the amount of money required to repair or replace your home after a loss. With replacement cost, your insurance company will cover the costs to replace your home to the same specifications as it was at the time of the loss. This is the recommended home insurance option because it offers homeowners a living situation that is closest to what they had before the accident that destroyed their property.
This type of coverage is calculated by using a tool called a replacement cost estimator. This value does not include any items in the home or the land that your home sits on. Replacement cost considers your home’s construction materials and any valuable upgrades that you may have made.
While some people are shocked to learn the cost of rebuilding a home the estimates calculated by tools such as a replacement cost estimator are quite accurate. If you are thinking that you could build a new home for less or find a contractor that can get you a “deal”, it seldom works out that way.
Factors that Affect Replacement Cost
There are a number of factors that affect the cost of building or rebuilding a home in today’s market. Here are a few to consider.
Labor and Material Costs
The cost of materials to build a home change quite frequently. This is simply due to supply and demand. For example, during hurricane season one can expect lumber, plywood, sheetrock, and shingles to skyrocket for many months until the demand is met, and the market returns to what is considered normal. Another example of supply and demand is simply the housing boom that we’ve experienced for a number of years. There are more and more people building new homes or remodeling existing homes. This demand for materials and labor has further caused increases in rebuilding costs.
Insuring Your Roof
When it comes to insuring your roof, you have a few choices to make as well. The primary choices is what type of deductible do you want to choose. Insurance companies offer both flat deductibles and well as percentage deductibles. If this is getting confusing, we can help.
Invest in Comprehensive Home Insurance Coverage with Tagge Insurance Agency
Our independent Missouri insurance agents are happy to help determine the level of coverage you need for your home. By utilizing our replacement cost estimator, we can calculate your coverage options and help to provide you with peace of mind. Interested in learning more about the benefits of comprehensive insurance protection? Call (417) 889-4663 or contact our friendly team online today to learn more and request a free quote!