Should I consider market value when buying a homeowners policy?

Does market value impact the rate of my insurance policy? I purchased a home in Mississippi for $75,000. The insurance company is insuring my home at $150,000, which does not make sense to me. Based on what I paid for my home, I think I am spending too much on my homeowner's insurance.

Answer
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 policies.
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.”
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Shannon Martin
Answered on Jul 27, 2021
Shannon is an expert in personal lines liability insurance with 13 + years of insurance industry experience. She also served as a special insurance liaison to AARP members for 6 of those years. She is a graduate of UL Lafayette and currently resides in NY with her family. Shannon is also an amateur juggler, ukulele player, and is a time travel paradox theory enthusiast.
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