The Importance of Replacement Cost vs. Market Value

Disaster can strike at any time, so most individuals are not immune to personal loss regardless of season.

A recent survey found that most homeowners are seriously underinsured. Marshall & Swift/Boekh (MSB), a leading insurance data services company, found that 66-percent of homeowners had inadequate coverage by an average of 18-percent. That works out to $36,000 for a typical $200,000 home.

While few people would willingly choose a policy with a $36,000 deductible, it ultimately is the net result of being underinsured on what may well be their most valuable asset.

Market Value vs. Replacement Cost

The market value — or what your home would sell for today — is very different from replacement cost coverage, which is the amount necessary to properly insure the rebuilding of your home. Market value takes into consideration the land value, depreciation and other nearby market factors while the replacement cost simply reflects the cost to rebuild a home. These can be very different numbers.

For example, you can have a home that is worth $400,000 in one neighborhood while an identical home across town could have a market value of half that much, even assuming they were built on lots of equal size. But actually replacing those homes — rebuilding them in place using similar construction methods and materials — would essentially cost the same for both. Rebuilding costs can be higher or lower than market values, since factors like land value and depreication don’t affect rebuilding.

Separate Structures

Separate structures, sometimes referred to as “other structures” or “Coverage B,” refer to any structure that is on your property, but not attached to your main house. Examples of separate structures include:

  • Detached garage
  • Fence
  • Garden shed
  • Detached in-law unit
  • Retaining walls
  • Swimming pool
  • Outdoor kitchen

Most homeowner policies automatically include separate structures insurance (Coverage B) that equals 10-percent of the amount of insurance on the main house (Coverage A). If the number and value of separate structures are significant, such as the detached living quarters — or others beyond just one of the items listed above — a separate valuation should be done for each to determine if extra coverage is needed.

Contents Coverage

Your homeowner’s policy will automatically include personal property coverage, which is a separate item sometimes known as “Coverage C” that can equal 50-percent to 75-percent of the Coverage A amount. If you have a typical amount of personal property in your home, this may be adequate.

However, if you have a significant amount of personal property or you have higher value items, then you may want to discuss an additional amount of coverage with us. Items such as jewelry, guns, coins, computers, business and high risk property typically have policy sub-limits, some of which may be $1,000 or less.

Such special items should be discussed with Gunn Mowery, especially if they are valued over $1,000. A homeowner’s policy has many options to increase these personal property coverage amounts.

For more information on homeowner’s coverage, please contact Gunn Mowery at 1-800-840-1243. You can also reach us via email at or visit our website at Become our Facebook fan at

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Gunn-Mowery accepts no liability for the content of this blog post, or for the consequences of any actions taken on the basis of the information provided. If you are not the intended recipient, you are notified that disclosing, copying, distributing, or taking any action in reliance on the contents of this information is strictly prohibited. Content that appears is not intended to substitute for personalized professional insurance advice.

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