At What Value Should I Insure My Home?

The thing to remember when determining the value at which you should purchase your homeowners insurance is that the replacement cost of your home and the appraised/market value are two different things and are not interchangeable. Whereas the market value is based on what comparable homes in the area are selling for, which has gone down all across the country, the replacement cost to insure a home to be rebuilt has actually gone up with inflation and other building costs. You also need to be careful since many companies no longer offer guaranteed replacement cost on their policies, meaning that if you are under-insured, you may not receive enough money to rebuild the damaged portion of the house if you experience a loss. The replacement cost is usually calculated on the per-square-foot building costs in your area, along with the specialty features of your home. The insurance companies, years ago, put the responsibility on the insured to determine the value of their home instead of relying on them, so the risk of under-insuring has grown over the years. This is why Dave so strongly recommends including either guaranteed replacement cost or extended replacement cost on your homeowners policy.

Learn how to calculate the coverage amounts you need for each part of your policy.