Why is my home insured for so much more than I bought it for?

Category: Homeowner,

Most homeowner’s policies are designed to provide “Replacement Cost” coverage.  Every insurance company uses a calculation method to determine the replacement cost for each home it insures.  Replacement cost is based on factors such as: year built, number of stories, living space square footage, number of bathrooms, exterior and interior design and finishes, and the cost of construction labor and materials in your particular area.  You will almost always be able to purchase a home at a market, or appraised, value that is less than what it would cost to actually rebuild the exact same home.  For additional information regarding this topic, please refer to our article on How Much Coverage is Enough.