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Q:  Hey Gina, my insurance policy says it will cover the replacement cost for my home if it is a total loss. Why is my replacement cost more than my home’s market value?

A:  Replacement cost and market value are two different things.

Market value represents what your home is worth if it is sold on the market. Homeowner’s replacement cost insurance covers the cost to replace your home if it is a total loss up to the limits of your Coverage A amount.

Most insurance companies utilize a replacement cost calculator to estimate the approximate cost required to rebuild a similar structure in your geographic market.

The estimated cost includes the pricing for labor, materials, applicable permits and fees, sales tax, and contractor’s overhead and profit (it does not include costs for major excavation or land value).

Replacement cost is only an estimate, however, and it is not guaranteed to represent actual replacement costs in the event of damage or loss. It is usually defined in the policy as the cost to replace the damaged property with materials of like kind and quality, without any deduction for depreciation.

Your replacement cost can change over time, especially if you’ve done any upgrades to your home, so it’s a good idea to review your homeowner’s policy annually to make sure that your coverage is adequate for your needs.

Call us today at Coggins Insurance for a policy review or a quote on your homeowner’s insurance, or any other insurance needs that you may have, at 850-457-3299!


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