You get your property tax assessment in the mail and are shocked to find the ‘value’ of your home stated as less than you’d expect. You have a real estate agent visit your house and recommend a list price – that is, the market value of your home. Your bank sends you a statement of what you have left to pay on your mortgage.

Does your insurance company care about any of these assessments? Nope – they only take into account the replacement value of your home, that is, what it would cost to rebuild the same house today.

Difference Between Market and Replacement Value

Both the market value and the replacement value of your home depend on the economy to a certain extent – but for very different reasons.

Market Value of Your Home

The market or tax assessment value takes into account variables such as:

• What other homes in your neighbourhood/city are selling for
• The value of land locally
• The desirability of your home’s location

Replacement Value of Your Home

The replacement value takes none of that into account; it is affected by factors such as:

• Your municipality’s changing construction codes
• Site accessibility
• Energy and material costs
• Debris removal
• Cost and availability of skilled labour
• Winter heating of the construction site

So you can see, replacement value is based on the estimated amount it will cost to rebuild/replace property items while the market value is based not only on the value of the home but also the surrounding location. If you were to build 2 homes exactly the same with one in a nice suburb and one in an underdeveloped neighbourhood, they would have the same replacement cost, but much different market values.

Should I Insure My Home At Market or Replacement Value?

You should know the exact replacement value of your home and then insure your home to that value. This is critical should calamity strike and you lose everything on your property.

Your local insurance broker can help you with replacement value calculation. There are costs that you might not think of when considering the replacement value of your home such as changing building codes for example. Talk to your broker about this urgent matter; your insurance has to reflect the right value of your home.