Advertising Disclaimer

Is Homeowners Insurance Based on Property Value?

No, in most cases homeowners insurance coverage is not based on property value. Dwelling coverage is usually based on the replacement cost of the home which can differ greatly from the property value.

Read Time: 2 mins

Our team is devoted to helping homeowners make the right coverage choices. We adhere to strict editorial guidelines to maintain the accuracy and relevance of our content. This article may feature our affiliate partners who provide us with compensation; however, our reviews remain independently formed. For further details, please refer to our editorial policy.

When looking for homeowners insurance coverage it is important to purchase the proper amount of coverage to fully protect the home, but what is the proper amount of coverage for one’s home? This is actually a trickier question than it sounds. Your home will have a market value, which is what you bought it for or what you could sell it for right now, but that is actually the wrong number to go off of when purchasing homeowners coverage.

Your insurance company will use what is called a replacement cost estimator to determine what the cost would be to completely replace the home. Insurance companies typically have proprietary software that takes into account a number of different factors to determine the replacement cost. Typical factors include:

Compare home insurance quotes
Find cheap rates from the best providers in your area
  • Age of the home
  • Size of the home
  • Materials costs
  • Location
  • Other unique characteristics of the home

This is certainly not an exhaustive list. Some insurance companies will take into account more factors than others. The estimator will spit out a number based on these factors that will be what they use when quoting you for home insurance.

You, as a homeowner, can also estimate the replacement cost of your home. There are some simple methods that will provide more general numbers and there are more complex and more specific estimators such as having an independent inspector come to inspect the home and run their own calculations. 

Whatever estimator is used, the replacement cost number that is calculated will most likely differ from the market value of the home. Market value can take into account the value of the land the home sits on and other factors that would not be included in a replacement cost calculation. Don’t be surprised when your insurance company tells you a number that is different than what you are planning to buy the home for.

Get Cheap Home Insurance
Compare quotes from the top insurance companies in your area to find the cheapest plan
Photo of author
Kyle has extensive background in financial planning and financial writing. He is an expert in home, auto and life insurance. Kyle holds a Bachelor's degree in Business Administration from San Diego State University and multiple financial planning designations.
Notice an error or discrepancy?
Despite our rigorous fact-checking process, we recognize that errors can sometimes occur, as we are only human. If you discover any inaccuracies, oversights, or outdated information within this post, please bring it to our attention. Your input is highly appreciated and instrumental in maintaining the accuracy of our content. Contact us here.

Leave a Comment

Thank You for Visiting HOIC