How Replacement Coverage Differs From Market Value

There are two key distinctions that every homeowner should know: “replacement cost” versus “market value.” Replacement cost covers repairing or replacing your entire home. Market value is how much someone would pay to buy your home and accompanying land in its current downtrodden condition.

When you’re considering the type of coverage to take out, a policy that’s based on market value is typically less expensive but, as State Farm puts it, “for a cash-strapped homeowner, buying a policy based on market value offers the best chance to recoup at least partial expenses after a loss.” In other words, you won’t recoup as much in the event of a serious disaster.

For those who have a good emergency fund in place, Derrick says that there is a way to possibly get more substantial coverage and still pay lower premiums: “You might consider getting a policy that covers more in terms of replacing or rebuilding your property, but with a higher deductible.”

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