Understanding Reconstruction Cost and Market Value
Insurance provides protection if the unthinkable happens. This is why you’re required to purchase homeowners insurance when you buy a home to help protect your new (very expensive) asset. Certain catastrophes, such as natural disasters, house fires, or other devastations, can destroy a home to no repair. When choosing insurance, you’ll want to make sure you are informed on what best suits your needs if you’re ever faced with this unfortunate situation. Lines Insurance & Financial Services wants to help you understand the differences between reconstruction cost and market value to help you make an informed decision.
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Reconstruction Cost
If you have suffered from the hardship of your home being destroyed, one option you have is to rebuild your home from the ground up. The cost to do this is referred to as reconstruction cost. This would entail rebuilding your home similarly to the way it was before. Current prices of materials and labor are factored into the cost, as well as the age and square footage of your home, costs for demolition and debris removal, and your home’s architectural style/building elements. Things not included are replacement of personal property, which would need to be paid for separately. Should you rebuild your home, you have the ability to return to your usual quality of life with minimal financial disruption. With reconstruction cost, you will have insurance to pay for the rebuild.
Market Value
The value of your home on the housing market is referred to as market value, or the amount that a buyer would be willing to pay for it. This amount is figured out by your home’s age and square footage, its land value, and the current market (supply and demand). The value of homes in the area is also a factor, which is not something that’s considered in reconstruction cost. Typically, the market value is higher than the reconstruction cost, but it can vary and there’s no guarantee. This is in part because the market is constantly changing. This causes the value of your home to fluctuate depending on the current market. For example, if your house was destroyed during a housing market that has crashed, this can potentially cause the market price to be lower than a reconstruction cost estimate.
Purchasing Insurance You Can Trust
Every scenario is different, and it’s important to make the right decision for you and your family. Lines Insurance & Financial Services doesn’t think you should take that decision lightly. That’s why our insurance agents are available to answer any questions you may have and are able to provide you with different quotes.
Our home insurance plans offer comprehensive coverage for your property and your assets in the event of theft, accidents, fire, natural disaster, or structural failure. Give us a call today and speak with one of our agents to find out more about the differences between reconstruction cost and market value, and let them help you figure out what the best choice is for you.