Dwelling coverage vs. market value: why they differ
Your home's sale price is not what it costs to rebuild. How to pick Coverage A.
Coverage A should reflect what it would cost to rebuild your home, not what it would sell for. The two can be very different.
Why they differ
- Land is not insured. Market value includes the lot; rebuilding cost does not.
- Construction costs change. Labor and materials can rise faster than home prices.
- Building codes. Rebuilding may require upgrades to meet current codes.
Estimating rebuild cost
Insurers use replacement cost estimators based on square footage, construction type, roof, finishes and local labor costs. Review the estimate and correct anything that is wrong, such as square footage or a recent renovation.
Protect against underinsurance
Ask about extended or guaranteed replacement cost endorsements, which pay above Coverage A by a set percentage, and about ordinance or law coverage for code upgrades. Many policies also expect you to insure to a set percentage of replacement cost.
This guide is general information from Quoting Fast, not insurance, legal or financial advice. Coverage rules vary by state and insurer.