Your Biggest Insurance Question, Answered

July 4, 2017


Most non-insurance professionals answer, “enough to cover the mortgage” or “enough to REPLACE the home.” However, the correct answer requires more calculations than that. Confusing replacement or market value with reconstruction cost is one of the biggest misunderstandings of insuring property, and you don’t want to be left without proper coverage in the event your home is destroyed.

From an insurance standpoint, Replacement Cost is defined as the cost associated with replacing a new home of like kind and quality. This cost is normally associated with building a replacement home from the ground up as in new construction. Market Value is defined as what a buyer would pay for a home on the real estate market. Lastly, Reconstruction Cost provides the cost to “reconstruct” an exact duplicate or replica of the original home, using like kind and quality and up-to-date building standards and accounting for structural damage from a covered loss.

Structural damage could include new blueprints, demolition, salvage and debris removal, etc. These costs are normally not associated with the other cost estimations, but they are the main thrust of calculating accurate reconstruction cost. According to Forbes Magazine, the biggest mistake a homeowner makes when purchasing insurance is not having “enough insurance to cover the cost of rebuilding/reconstructing their house if it’s destroyed”. The recommended remedy: complete a replacement cost calculation using a professional replacement cost estimating tool.


River Landing Custom Home Program Allied Partner

Thanks to Carlton Insurance for sharing this article via Lighthouse Property Insurance Corporation.

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