Are you confused about replacement cost versus market value when it comes to a home insurance policy? Not to worry — we explain what they mean and review the advantages and disadvantages of each, so you can choose the home insurance coverage that’s best for your needs.
What Is Replacement Cost?
Replacement cost coverage with a home insurance policy covers the cost of repairing or rebuilding your home at today’s prices. That includes the current cost of lumber, masonry, construction materials, and labor in Missouri.
What Are the Pros and Cons of Replacement Cost Coverage?
Replacement cost coverage has one big advantage: if your home is severely damaged or lost, you can rebuild such that it replicates your present residence exactly. You won’t have to cut corners or make do with a smaller or lower-quality dwelling.
What Is Market Value?
Market value coverage reimburses you for your home’s worth on the current real estate market. That means insuring for market value can make the home’s worth vary depending on depreciation and intangibles such as the quality of area schools, local amenities, and perception of your neighborhood.
What Are the Pros and Cons of Market Value Coverage?
While market value coverage is often less expensive, there is a huge disadvantage to insurance of this type. You may wind up with less insurance than you really need should you suffer catastrophic damages or loss of the home.
For example, you purchased your home last year for $250,000 and insured it for that amount. After a fire, contractors estimate that the cost of rebuilding the residence would be $350,000 due to rising labor costs and lumber shortages. So, if you want to rebuild, you will either have to shoulder the extra $100,000 yourself or rebuild to a different size and/or standard than what you had previously.
Which Type of Coverage Is Best for You?
We almost always recommend replacement cost coverage for our clients throughout the state of Missouri. We don’t want you to be underinsured when it comes to your greatest asset, and our clients agree.
Most folks think their home is over-insured, when in fact, it’s frequently the opposite. If anything, we recommend increasing your coverage to be on the safe side. This will give you more peace of mind should the worst occur.
Do you need help figuring out how much coverage to take out with your home insurance policy? Our independent agents are happy to help you calculate this. Call Lang Insurance at 636-229-7000 for more information. You’ll appreciate our attentive service, and you won’t ever worry if you have enough coverage for your home.