In this tumultuous property market, home values can vary greatly from town to town, county to county, and state to state.  In addition, market value and replacement cost can differ incredibly.  Explaining the difference between market value and replacement cost to your insured is probably one of the biggest challenges you can face. 

A home is by far one of the biggest investments many of us will make and insuring this investment should be of the utmost importance.  Often times the client wants to insure their home for the “purchase price”. A quick trip to your local home improvement store will give you an idea why. To the non-insurance person, it sounds like a logical idea, but we know otherwise!  The cost of materials has skyrocketed while the market value of existing homes has dropped, making the gap so much greater, which makes the agents job that much harder. 

Some agents find it frustrating to explain the value in replacement cost to their customers.  Customers automatically shut down and exhibit that “you are trying to sell me something I don’t need” attitude.  Well let’s consider the below.


  • How would they handle the total loss to their home?

Describe all possibilities with your customer.  Measure examples of real losses against replacement cost.

  • What would happen if only part of the home was damaged?

 If they think they don’t need replacement cost because they wouldn’t rebuild their home, it’s smart to explain how partial losses are handled.  Replacement cost would allow partial losses to be covered completely whereas an Actual Cash Value policy would leave a large portion of the claim to be unpaid, leaving the insured on the hook for the balance.

  • Complete a replacement cost valuation with the insured, going over   every detail of their home. 

Reviewing this with the insured can open their eyes to fine points they may not think about.

The end goal is to get the insured to understand what Replacement Cost against Market Place Value means for them.  We want what’s best for our insured’s, so we shouldn’t assume that they there are going to understand the differences on their own.  Make sure you are effectively presenting the facts!

-Maureen Gomez


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