Why do I have to Insure My House or Building For More Than It’s Worth? Replacement Cost!

” My home was appraised for $200,000, but the insurance company is making me insure it for $250,000.” Why?

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This is a question that I am asked a lot on a daily basis. The reason why your home insurance coverage amount may need to be higher than its market value or appraisal value is because it is insured for replacement cost.

What is replacement cost?

Replacement cost is how much your home would cost to rebuild, in the event of a loss.  Try to think of it this way …If your house was to burn down today, how much do you think it would cost to not only rebuild but clean up and tear down your old home?

Insurance companies use replacement cost to accurately protect your assets in the event of a loss. There are many cases where homes and properties have been greatly under insured.

When you suffer a loss to your property it is the insurance companies duty to indemnify (compensate) so that you suffer no loss.

It doesn’t matter how much your home is worth or will sell for. The only thing that matters is how much it will cost to rebuild your home with todays costs.

(which is why I always offer an additional 25% extended dwelling coverage on your home in the case that building cost rise from the time we wrote the policy to the date of your loss.)

Dont stress too much about replacement cost. Just make sure when you call in to get a quote that you are giving your agent as much information as you can about your home and assets. It’s our job to evaluate your property and to make sure you are being insured for the right amount.

It’s my job to protect you. :)

-S

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