According to recent studies by major insurers, approximately 70% of houses in the United States, or two out of every three, are underinsured by at least 18%. This means that in the event of a total loss, such as a fire, the homeowner may be held liable for a large amount of the reconstruction costs. Working with an insurance professional to negotiate your home value issues will help you avoid misunderstandings and secure fair compensation in the case of a loss.
The market value (appraisal value) tax value of your home is entirely different from how much it would cost to rebuild your home in case it was completely damaged.
Replacement Cost Considerations
There are a number of factors that go into determining your home’s replacement value, including:
- Type of construction quality
- Materials used in the construction
- Size of your home
- Your lot configuration
- Are there any unique materials, like imported stone, marble, etc.?
- The overall quality of construction, is your home average construction or high-end?
- The average cost per square foot for new construction in your area.
The level of homeowner’s insurance you purchase is determined by your specific requirements. Insuring your home or other property for its full replacement value will help you prevent large out-of-pocket payments that could deplete your funds and cause you to change your estate plan. In addition, the contents of the home, other structures on the land, additional living expenditures, liability, and other factors should all be considered. Consult your agent about the right amount of coverage for your home and how to best arrange your policy.