A lot of consumers confuse real estate value with replacement cost when they are dealing with the issue of how much to insure their home for. To complicate things further, lenders usually require guaranteed replacement cost when you are applying for a mortgage. Let’s examine what exactly these terms mean, and what the difference is between the real estate value and replacement cost.
Replacement cost is the cost to rebuild your home with similar materials, while real estate cost is typically the value of your home & property, considering comparable sales. When insuring a home, we consider the replacement cost alone and insure based on that value.
Guaranteed replacement cost is a term that is used to insure the consumer that, once an insurance broker does a replacement cost calculation, even if it costs more to replace the home after a loss…you are guaranteed to have your home rebuilt. The requirement is that you have regular replacement calculations done (i.e every few years) and that you insure your home 100% to value (the amount of that replacement cost calculation). As mentioned earlier, this is typically a requirement of any lending institution after you purchase your home and are looking for a mortgage.
When your broker offers to do a replacement cost calculation in person or over the telephone, it’s important to note that they are doing it to protect you and be able to offer the best coverage possible.
Blog brought to you by: James W. Grieve, B.Comm | Commercial Lines Manager Office: 905-425-0729 Cell: 289-314-9182 James W Kloepfer Insurance Broker Limited