While home values have declined over the last two years, homeowners have not seen their home insurance costs follow the same descending trend. This situation is very frustrating for consumers who assume that since their homes now worth less, the cost for insurance companies to rebuild or repair must be lower as well. In fact, according to National Association of Home Builders, between the years 2002 and 2008, replacement costs have more than double for replacing certain portion of a home.

Changes in the economy are one of the factors that could affect your home’s insurance coverage, others are:
• Refinishing or remodeling
• Inflation

To make sure your home is adequately covered at a time of a loss, it is important to know the difference between market value and replacement cost coverages.

Market Value (or selling price) is determined by:
• Age and size of house
• Physical condition
• Location
• Cost of the land
• Market value may only represent one-half or one-third of the cost to rebuild

Replacement Cost is determined by:
• Local construction costs for materials and labor
• Square footage of the home
• Year built
• Exterior Features (i.e. walls, roof, exterior trim)
• Style of house (i.e. ranch, two-story)
• Number of bathrooms
• Special features (i.e. fireplace, arched windows, any custom building)
• Recent home improvements
• Central air conditioning
• Attached garage
• Additional costs (i.e. debris removal, contractor and architect fees)

Replacement cost for a single home does not recognize the discounts on mass purchases that a multiple-home construction project does.
Replacement cost as the insurance company defines is the actual cost of replacing property without a deduction for depreciation.

Contact us for more information or questions regarding market value and replacement cost.
Now it is more important than ever to speak to an experienced, licensed insurance professional to make sure that you have the right type and amount of coverage on your homeowner policy.