Dwelling: Replacement Cost Coverage

Last updated: October 7, 2015

Dwelling: Replacement Cost vs Market Value

Replacement cost on your dwelling is the amount it would take to repair or rebuild your home or replace damaged property with materials of similar kind and quality.

  • Do not confuse replacement cost with market value.

    • Market value is the value of property established by the price you agreed to pay for your home when you bought it.

    • The market value generally is not involved in determining what amount of coverage to buy under a homeowners policy.

  • In some situations, the replacement cost value may actually be higher than the market value of your home.

Insurance coverage is based upon the construction replacement cost amount. Market value is associated with real estate and taxation valuations.

80% of Replacement Cost

Most insurance companies make you insure a structure for at least 80% of the replacement cost value during the entire term (365 days) of coverage.

  • If the homeowner fails to insure for at least 80% of the replacement cost, a penalty is applied for payment of claim(s) on partial losses.

    • For example, if it would cost $100,000 to replace your home and it is insured for 80% of the replacement value — or $80,000 — when a fire causes a $25,000 loss, your insurance will pay the full $25,000.

    • If it would cost $100,000 to replace your home but it is insured for less than 80% replacement — say, $60,000 — and a fire causes a $25,000 loss, your company would pay for only part of the loss.

      • You would have to pay the balance and any applicable deductible.

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