If you are about to make an offer on a new home, it is likely that what you are going to offer is what is considered market value, or in other words, what the home is worth. Another value you need to consider when insuring your new home is what is referred to as Replacement Cost. If you’re like most potential home buyers, those terms are just a few of the new concepts that have been swirling around in your head recently. And while some of the new terms you’ve learned are less important than others you’ll want to understand each of these as you look forward to investing in homeowner’s insurance.
Whether you’ve been exploring your coverage options for a while or you just realized that your mortgage lender requires home insurance before closing – we’ve got you covered. Keep reading to learn more about market value and replacement cost, and how to make the right decision.
How Much Home Insurance Coverage Do I Really Need?
Determining home insurance coverage limits should be the same process for all homeowners. While market value and replacement cost are often mentioned in the same conversation, they are completely different concepts. Each is an estimation of your home’s value, but they use very different valuation criteria. In fact, these two values often differ by thousands of dollars for the same building.
What is Market Value?
Market value simply refers to the estimated price that your home would be priced at if you were to put it up on the open market in its current condition. Determining the market value for a home depends on many different factors. Some of the most common factors used to determine your home’s current market value may include:
- The local real estate market in the Fox River Valley area • How close the property is located to good schools in the area • The availability of other similar homes in the neighborhood • Local crime statistics • The size and condition of the land that the home sits on
While your land is considered in the overall market value of your home, it is not included in your homeowner’s policy.
What is Replacement Cost?
The replacement cost is the estimated price of replacing or constructing a new home that is equal to your current home following a loss. This estimation is made at current prices and can also be influenced by several different factors. When estimating replacement cost value on a home, the land is not included in the final numbers. Instead, the appraisal will only include the dwelling itself as well as the home fixtures, finishes, and other systems.
How Much Coverage Do You Need?
When insuring your home, your independent insurance agent will help you determine the amount of Replacement Cost coverage you need. Replacement cost coverage offers homeowners and their families the greatest sense of security after a loss. For example, if your home is lost in a fire, you can rest easy that you will be able to afford construction on a new home that allows you to maintain the same quality of life – without the threat of increased financial hardships.