Replacement cost vs market value
You insure your home for replacement cost — what it would cost to rebuild it with similar materials at today's local prices — not its market value, the price a buyer would pay. Market value includes the land, which is not insurable because it doesn't burn down. Set your dwelling coverage (Coverage A) to full replacement cost; insuring to market value (or to your mortgage balance) commonly leaves you over- or under-insured and can trigger a coinsurance penalty on a claim.
Data as of June 2026.
Replacement cost vs market value vs assessed value
| Figure | What it is | Use it for |
|---|---|---|
| Replacement cost | Cost to rebuild the structure at today's local prices | Setting dwelling coverage (Coverage A) |
| Market value | What a buyer would pay; includes the land | Buying/selling, not insurance limit |
| Assessed value | County figure used for property tax | Property tax, not insurance |
| Mortgage balance | What you owe the lender | Loan payoff, not insurance limit |
How to estimate replacement cost
- Ask your insurer to run a replacement-cost estimator (most do this at quote time).
- Use square footage x local cost-per-square-foot to rebuild (a contractor or insurer can supply the rate).
- Account for finishes, custom features, and code-upgrade requirements (ordinance or law coverage).
- Re-check it as construction costs rise — many policies add inflation guard, but it can still lag.
Then consider an extended or guaranteed replacement cost endorsement, which pays above your limit (up to a cap, or in full) if rebuilding costs spike after a widespread disaster. See how coverage amount affects price on the premium by coverage page, or estimate yours with the premium estimator.
Frequently asked questions
What is the difference between replacement cost and market value?
Replacement cost is what it would cost to rebuild your home with similar materials at today's local construction prices. Market value is what a buyer would pay - it includes the land and reflects supply, demand and location. You insure for replacement cost; the land is not insurable because it doesn't burn down.
Should I insure my home for its market value?
No. Market value can be higher or lower than rebuilding cost. In hot markets the market price often exceeds rebuilding cost (you'd over-insure); in some areas rebuilding costs more than the home would sell for (under-insuring if you use market value). Always insure to replacement cost.
What is the 80% coinsurance rule?
Most policies require you to insure the dwelling to at least about 80% of its replacement cost. If you carry less and have a partial loss, the insurer can reduce the payout proportionally (a coinsurance penalty). Insuring to 100% of replacement cost - ideally with an extended or guaranteed replacement-cost endorsement - avoids this.
Related
General information only — not advice. Coinsurance rules and endorsements vary by policy and state. Confirm your replacement cost and coverage with your insurer and state insurance department.
Last updated: 2026-06-20