Insurance guide
Replacement Cost vs. Market Value
Why a home's insurance limit is based on rebuilding cost rather than its sale price.
Market value reflects what a buyer may pay for the home and land. Replacement cost estimates what it may cost to rebuild the insured structure with comparable materials and labor after a covered total loss.
Land value, neighborhood demand, demolition, debris removal, building-code requirements, labor, and material costs can cause the two figures to differ substantially. A higher purchase price does not always require the same amount of dwelling coverage, and a lower purchase price does not mean reconstruction will be inexpensive.
Review the replacement-cost estimate for the home's square footage, construction features, finishes, attached structures, and improvements. Update the estimate after major renovations or additions.