McCurdy Group - Insurance and Financial Consultants

Tuesday, May 12, 2009

Replacement Value vs. Market Value as it relates to Homeowners Policies

Many people wonder why their Homeowners Coverage A - Dwelling - amount may increase even though the current market value of their home is decreasing. What most people don’t understand is that the amount your home is insured for is not a reflection of market value, but rather replacement value – the cost to rebuild your home from top to bottom in the case of a total loss.

There are many factors that go into determining the replacement value of a home, some are more obvious than others. Although you may immediately think about the cost of lumber, fixtures, or other materials required to rebuild, you may not think about the rising costs of transporting those materials, the cost of new technology, new building codes and regulations or even the cost of labor and energy.

So, the next time you see your homeowners premium increase keep in mind that you are purchasing coverage needed to rebuild your home and not simply to purchase a new home.

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