Homeowners Face a Tricky Property Insurance Market
Yet, the relationship between market value and replacement value is much more tenuous than you’d expect. “When you look at the proportion of replacement cost to the market value, each [carrier] will designate percentages acceptable to them. The carrier has discretion to set their own proportion of what they are willing to accept. The market value could be well above or well below replacement value. It does work in both directions, depending on the location,” says Chris Hackett, PCI's director of personal lines Policy.
The safest way to prevent underinsurance is to pay extra.
Guaranteed Replacement Cost covers the entire cost of rebuilding your home, with no particular limit. This, however, is the most expensive product, and by insurers’ admission, the hardest to find.
Enhanced Replacement Cost is more common in the marketplace and it is designed to insure your property for up to 125 percent of the replacement cost. So for example, if you’re raw estimate replacement cost is $300,000, it would give you up to $375,000 in coverage.
(Check with your insurer to assess which if any of these optional, add-on products are right for you.)