Connecticut Homeowner’s Insurance - Market Value vs. Replacement Cost

A Common Question:  Home prices in Connecticut have fallen. Why aren’t Connecticut homeowner’s insurance premiums lowering too?

A home’s market value and a home’s replacement cost are commonly confused. It is often thought that declining property values in Connecticut mean declining Connecticut homeowner’s insurance costs.  The truth is, the market value of your home does not determine the amount of Connecticut homeowners insurance you need or how much you pay for it.  In fact, insuring a home based on the market value can often leave a homeowner dangerously underinsured. 

A Home’s Market Value

This is the price you paid for your home.  Prices of homes are determined by many factors such as, location, the homes structural condition and physical appearance, the condition of properties in the surrounding neighborhoods, the quality of the town’s schools system, the acreage, the condition of the housing market and more.  

A Home’s Replacement Cost

This would be the cost to rebuild your home from the ground up based on today’s cost. In the event you suffered a total loss, you want to be sure your Connecticut homeowner’s insurance reflects the cost of rebuilding and not the market value.   Rebuilding costs and market value are often two entirely different numbers which can seem confusing to some homeowners.  However, rebuilding can be very expensive and often estimated higher than the market value of the home.  The fluctuation of materials and labor, the cost of demolition and debris removal, changes in building codes that may affect building on an existing foundation or other aspects of building, and the absence of bulk material discounting are just a few examples of why rebuilding can be much more expensive.

How is the Replacement Cost of a Home Determined?

Determining a home’s replacement cost should be a collaborative effort between the homeowner and the insurance provider.  Connecticut homeowner’s insurance providers use computer software and other programs to estimate the reconstruction costs of homes.  They also work closely with homeowners to take into account specifics that may vary the homes replacement cost such as custom interior work and high-end contents. It’s important for Connecticut homeowners to be as specific and detailed as possible when reviewing the details of their home with their Connecticut insurance agent.  Connecticut homeowner’s and Connecticut insurance agents should also work together going forward to be sure that their Connecticut homeowners insurance accurately reflects the replacement cost of their home as changes in construction of the home may occur and changes in the construction industry may occur. 

Don’t Find out You’re Under insured When it’s too late

It may often seem like a good idea to unsuspecting Connecticut homeowners to insure their homes for the market value to reduce premium.    However, if the market value of your home is $175,000.00 but the replacement cost of your home is $250,000.00, purchasing Connecticut homeowners insurance to cover the market value of the home can leave a homeowner on the hook for a huge out-of-pocket expense in the event of a total loss.  Keep in mind, one main purpose of having Connecticut homeowners insurance is to restore a home to its original condition after a total loss. 

Experiencing a catastrophic loss can be very stressful and emotional.  Finding out you’re underinsured after a loss like this will only make matters worse.  It’s best to work with a reputable, and experienced insurance provider when considering Connecticut homeowner’s insurance for your Connecticut home.  A good Connecticut insurance agent can also help you decide other ways to save on your annual homeowner’s insurance premium without putting your financial future at risk.    

If you have any questions about the contents of this blog or Connecticut homeowners insurance, please contact one of our friendly insurance professionals at (203) 481-2684 or online at www.vfmcneil.com.