Before you purchase a new home, make sure you determine the appropriate amount of coverage needed. When you have the home appraised, ask if a replacement cost estimate is available or consult with your local builder association or a reputable builder for an estimate.

Understand The Difference Between Market Value And Replacement Cost

"Replacement cost" is the amount needed to repair the damage or to rebuild the home to its pre-loss condition. For insurance purposes, the replacement cost of a home is NOT the market value of the home, its purchase price or the outstanding amount of any mortgage loan. It does not include the value of the land, but is the cost of rebuilding your home.

How To Determine Your Homeowner's Coverage

The first step in determining the right homeowners coverage is estimating the replacement cost of your home, which will ultimately determine which policy options are available to you. Since it is impossible to predict today what the exact cost will be to replace your home in the future, it's important to have enough coverage to account for unforeseen circumstances.