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We get many questions from our customers regarding the replacement value of their home.  People are not sure how the replacement cost is determined. First, let's forget about the "market Value" of the home.  When determining replacement cost, you would not use market cost as a factor.  For example, you have 3 separate 2500 sq foot homes that are built identically in all ways. The first home is in a very depressed neighborhood.  The homes are not well taken care of & the Market Value of the home is $50,000.  The second home is located in your average well maintained suburb.  The Market Value of the home is $200,000.  The third home is located in the nicest part of town. The property taxes are much higher & the home is valued at $400,000.

In EACH CASE, the replacement cost of the home remains the same.  The replacement cost is very simply the projected cost to rebuild or replace a property after a total loss.  So, as you can see this value has nothing to do with where the home is located.  The value is strictly based on Size, Building Materials, Labor costs, type of finish....etc.  While the home in the first example may only be worth $50,000 based on market values... it would still cost the insurance company a set price to rebuild that structure.

When looking at your current insurance value, make sure that you property is sufficiently insured. Some companies will offer replacement cost with an additional limit of coverage (25%, 50% or unlimited).  But, in order to qualify for the extra amount of coverage, your policy stipulates that you must insure the home for the full 100% value of its replacement cost.  If not, companies can impose limits or exclusions if the home is not properly insured to value.

LIMITED REPLACEMENT COST   -  This is usually replacement cost of the dwelling capped out at the limit shown on the declaration pages

EXTENDED REPLACEMENT COST  -  This is usually the replacement cost of the dwelling plus an additional percentage of coverage (25% or 50% usually)

GUARANTEED REPLACEMENT COST  -   This feature covers the dwelling with an unlimited amount of replacement cost.

Posted 3:41 PM  View Comments

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