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What is the Difference Between My Home's "Market Value" and "Replacement Value?"

When you're getting ready to purchase a home and are shopping out insurance policies, something to look for in your quote is whether it is based on the home's "Replacement Value," "Actual Cash Value" or "Market Value." In every case, you should be covered for the "Full Replacement Value" of the home. 

  • Market Value is the amount your property (including land and accounting for age) would sell for in the current market based on comparative properties nearby.
  • Replacement Value is the amount it would cost to replace your home at current new material and labor prices.
  • Actual Cash Value is the Full Replacement Value with depreciation factored in. 

Typically a home's Market Value is higher than its Replacement  or Actual Cash Value. But again, when it comes to home insurance, you should make sure the company you are using has you insured for "Full Replacement Value."

If you make the mistake of insuring your home for Current Market Value, you could wind up spending more than you need to and being "over-insured." Conversely, if you insure for Actual Cash Value, you will likely be under-insured.

There are some cases, however, where replacement cost can exceed current market value. This can happen with historic homes that have harder to source materials that come at a premium, or with a property located in a rural or hard-to-reach area, where transportation and contractor costs can quickly exceed the national average.

Typically your insurance company will use a replacement cost estimator to generate your coverage estimate, but if you want to be sure any future replacement or repair of your home is truly covered, you can also elect to hire your own licensed appraiser who specializes in rebuild appraisals, then add a coverage enhancement if needed to guarantee future replacement costs in a worse-case scenario. 

We know that this topic, along with just about anything related to home insurance, can be a bit confusing. We're here to help. Whether you insure through us or not, please feel free to pick up the phone anytime. We can talk you through your options and help clear up any misconceptions about the current home insurance marketplace. 

Erika Breese is a Personal Lines Account Manager for Wren Insurance.