Market Value vs. Reconstruction Costs


Why is my homeowner’s insurance coverage more than what my house is worth?

A common question homeowners ask is “How much insurance coverage do I need to cover the replacement of my home in a loss?” Many assume the cost to rebuild a property will equal what was paid for the property. Insurers typically determine building replacement insurance coverage on estimated reconstruction costs at today’s prices.

Market Value is the price a consumer is willing to pay for the home. Reconstruction is the cost to replace or rebuild your house to original or like standards at current material and labor costs.

Insurers do not include the value of land in the reconstruction costs.


My home is new, so why is the Reconstruction Cost higher than I paid?

Rebuilding a property is always more expensive than first-time new construction due to several factors including:

  • Material discounts
  • Labor efficiencies
  • Site access
  • Utility access
  • Site improvements
  • Permits / fees
  • Working restrictions
  • Delivery access
  • Security concerns
  • Work interruptions

In order to be properly covered, your home should be insured for the amount it will cost to rebuild the home at current prices for building materials and labor costs, including bringing it into compliance with current building codes.

If your home is not correctly insured at the time of loss, you may end up paying the difference between actual construction costs and what your policy covers.