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Your home is probably the most important and expensive purchase you will make, but how much should you insure your home for?  

Many people think they need to insure their home for its market value, or for the amount of the mortgage. But actually you will need to insure it for the cost to rebuild it, known as the Replacement Value. 

Market value looks at variables such as the home’s condition, age, neighborhood, and the real estate market to determine a value.   Replacement Value takes into consideration things like the features of your home, quality and quantity of building materials, construction labor costs, and architecture fees.   If you insure for market value or the mortgage amount, you may be under OR over insuring your home. 

Many insurance companies use a Replacement Cost Valuation software to determine a home’s replacement value. Your agent will ask you many details about your home such as square footage, types of building materials, number of bathrooms, types of walls and flooring etc. to determine your home’s estimated replacement value. 

Because it’s an estimate, many insurance companies offer a little cushion of extra coverage just in case you need it.  It’s called Extended Replacement Value.  This coverage will give you an additional 25% of the dwelling amount.  But don’t think you can reduce the insured value by 25% because of this coverage.  The insurance company will require that you insure the home for 100% of the replacement value. 

The best protection to have for your home is the Full or Guaranteed Replacement Value coverage.  There are just a few insurance company that off this protection.  This will guarantee to rebuild your home for as much as it costs, even if it’s more than the insured amount.  You will need to insure the home for 100% of the estimated replacement value, and you will need to notify your agent of any changes that will increase its value, such as building an addition, finishing your basement, upgrading the quality of your kitchen and or bathrooms.

What about your other structures?

A standard homeowner’s policy will provide at least 10% of the Dwelling coverage for other structures such as your detached garage, shed, fencing, barn or any other detached structure on the property.  Make sure this amount is enough to cover your structures.  If it’s not, you can request additional coverage.

What about your personal property inside the home?

A homeowners Special Form policy will also include at least 60% of the dwelling amount for your personal property, such as your TV, stereo, furnishings, clothes, rugs, small appliances and more. This amount can be increased if you need to.

Having Personal Property Replacement Cost coverage will pay to replace your items, new for old.  So if you have a 10 year old TV, the policy will cover the cost to replace it with a new comparable TV.  Keep in mind that if you have valuable items such as jewelry, furs, silverware, or fine arts, there will limitations of coverage in the policy.  Having these types of items appraised and insured under a “personal articles schedule” will cover the items for the appraised value, or the cost to replace, whichever is less.

Most people think that a devastating event will never happen to them.  But we see on the news everyday fires, tornados, severe storms, gas expositions and more.  It does happen, and it could happen to you.  That’s why your homeowner’s insurance protection is so important, and is not where you want to skimp on coverages.  If you want to cut costs, try having a larger deductible, or see how much you would save by having a burglar and fire alarm system.

If you're not sure you have enough coverage, call your agent or insurance company to have them complete the replacement cost estimate. Or you can give us a call at 847-430-3342 ext. 1 for a quote and replacement cost estimate.

Click here to get a quote.

Click here to learn more about homeowner's insurance.


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