What is the confusion surrounding home market value and replacement costs?

The amount of insurance coverage needed is rarely close to the price you paid for your home. While the market value of a house can vary widely depending on the neighborhood location, area of the country and other factors, what usually does not vary much is the amount it will cost to replace that home — board by board — if a fire should burn it to the ground or if it gets swept away by a flood, hurricane, tornado or any other natural disaster. In areas where home prices are spiraling downward, such as in the southeast and mid-western parts of the U.S., that gap between cost to replace and market value is ever widening.

On the East Coast, where homes are holding value the best, the market value of the home is closer to the cost to replace. Are most homeowners, then, underinsured? Yes, most homeowners are severely under-insured; the latest estimate is that 64 percent of U.S. homes are undervalued and underinsured.

The problem is that people don’t understand the cost of replacement of ... more.

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