“Market value and replacement cost get confused all the time, but they are not related at all!
Your homeowner’s insurance premium is based solely on the replacement cost of your home.
Market value looks at factors that are not insurable, such as:
- Desirability of neighborhood
- Acreage and lot size
- Home size in relation to livable space
- Market value of nearby homes
Insurance companies evaluate how much it will cost to replace your home in the event of a total loss.
Replacement cost includes the cost of materials and labor, which can be higher or lower than the home’s purchase price (in your case, is it much higher).
Why would your your home cost more? Suppose your home is well-appointed but in a more isolated location away from schools and local businesses. In that case, the market value may be low, but the cost of materials high.
Keep in mind, the price of material and labor tends to increase over time, while market value can go up or down depending on what is in fashion for homes at the moment.
If you are questioning the cost of your insurance policy, it is time to re-shop both your home and auto insurance
Using the free Jerry
app will help make this happen! Jerry collects auto and home quotes from over 50 carriers and brings the lowest available rates right to the app.”