Purchasing a home can be a time filled with many different emotions. It’s normal to feel the excitement, the occasional bout of confusion, frustration, elation and more. One of the areas of the home insurance buying process that leaves many people stumped is wondering why their insurance agent is suggesting they insure their new home for more than what they paid for it. The reason is, your agent is advising them to insure it for replacement value, vs market value. If you’re unsure just how these terms differ, remember that you’re not alone! Luckily, the team here at Glass Insurance Center is happy to help. Keep reading to learn more about this important decision before you buy.
Understanding the Difference Between Market Value and Replacement Cost
Homeowners insurance is not only the best way to protect your new investment, but it is typically required by most mortgage lenders before you can finalize your purchase. However, when you already have a million different numbers, words and terms floating around in your head, it can be hard to make a quick decision regarding your coverage.
When it comes to these common terms, it’s key to remember that they are entirely different concepts that use different criteria to determine the value of a property. In fact, these two numbers can vary greatly depending on where you live, the size of your home and other factors.
What is Market Value?
When your insurance agent or real estate talks about the market value of your home, they are referring to the amount that a buyer would pay if they were to buy your home and the land that it sits on in its current condition. The market value for homes is estimated based on many varying factors. Some of these include the availability of similar homes in your area, your home’s proximity to good schools, crime statistics in your area and more.
What is Replacement Cost?
When you hear the term replacement cost, your insurance agent is referring to the costs related to repairing damage to or replacing your entire home. In terms of home insurance, when you chose to insure your home at replacement cost value, your insurance provider must reimburse you for the entire cost of repairing or replacing your home. This value is determined based on the size and structure of your home, as well as any associated systems, finishes, and fixtures. If your home was damaged in a catastrophic event like a fire or tornado, insuring your home at replacement cost can come in very handy.
Why Should I Insure My Home for More Than I Paid for It?
Purchasing a home insurance policy with correct coverage limits is a great way to protect against the unexpected. For example, while you may feel like the market value is perfectly fine in the event of an accident, but construction and material costs can fluctuate from year to year. This means that the best way to make sure that you can rebuild with the same quality materials and level of expertise is to invest in the most comprehensive coverage available.
Determining Your Home’s Replacement Cost
Still unsure of how much you should insure your new home for? We can help, our local Lake Geneva insurance agents are here to answer your questions. Give us a call at (262) 248-5555 today for more information and be sure to request a free quote.