Replacement Cost and Market Value

What you need to know about Replacement Cost and Market Value

When purchasing homeowners or renters insurance, it is important to know the difference between Replacement Cost and Market Value. Understanding your options can drastically help you make the right choice that will help you protect your house and family’s financial future.  

What is Replacement Cost? 

Replacement cost refers to the cost that is required to repair or replace your entire home. Insuring your home at its replacement cost, the insurer will reimburse you the cost of rebuilding the home. That is all based on the size and structure of the home that was lost or damaged. It is encouraged to find the replacement cost of your home by hiring a building contractor or any other building professional to produce a detailed list of repair or replace cost estimates.  

Benefits of Replacement Cost 

Believe it or not, when resulting in a loss, replacement cost coverage gives you and your family the best chance to return to your home.

  • Best return to quality of life with minimal financial disturbance.
  • Does not deduct from depreciation. 
  • Depending on the coverage, may also insure personal belongings.  


What is Market Value?  

Market value is the amount a buyer would pay to purchase your home and land in its current condition. There are many different factors that are applied to the market value of your home when compared to the replacement cost. For example, when considering market value, factors like material and labor costs are not important. However, factors such as these are:

  • Proximity to good schools.
  • Surrounding market value.
  • Location to amenities.
  • Land value.


These are all good indicators of high market value. If these factors apply, you should consider market value over replacement cost. However, even if these factors apply there is still a chance that they will cover less than what your home coverage would be when using replacement cost. Additionally, there are some other risks to consider with market value. The main risk for insuring with market value is the fluctuating market. With real estate dealing with fluctuations, there is always a possibility that the settlement could be less than what the home was originally purchased for.

Please consult with your Gilbert’s Risk Solutions insurance agent to best describe your home’s detail regarding: Floor plan, number of bedrooms, number of bathrooms, square footage, and any other amenities.

While these options may work for you, confirming your daily rental price limit is essential. You will be required to pay out-of-pocket for the additional expenses if you choose a more expensive rental, a rental outside your limits, or have the rental car longer than 30 days. 

Making sure you are aware of the difference between Replacement Cost and Market Value is one way we can help you make the right decision. 

 To find out more, contact one of our talented Risk Advisors today!


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