One of the most common questions we get when insuring a piece of property is how we determine the insurable value. Oftentimes we present a home insurance proposal to an insured and they inquire as to why the dwelling coverage is more than the purchase price of the home. The purchase price of the home reflects the market value, whereas the home is often insured for it's full replacement cost.

Replacement cost is the amount it would cost to rebuild a home from scratch. This figure includes factors like similar materials, degree of craftsmanship, roofing costs, exterior features, heating and cooling systems and more. Non-material costs are considered as well, including the costs of permits, fees, debris removal, contractor labor, overhead and profit. Market value is the amount for which you  would sell your home. This is calculated by factors such as the neighborhood, home values around you and the real estate market.

As a result, a home's replacement cost often (and sometimes greatly) exceeds market value. By making sure your home is insured for its replacement cost, you will be getting the coverage you truly need should ever suffer a total loss.