Replacement cost vs. Market value

Ellie - You bring up a good question regarding land vs. structure.  When insuring you are insuring structures, not land.  In a case where the land holds the vast majority of the selling price then the question may not even come up.  If it does I ususually reconcile against the structure value as split out on the appraisal.

Lynda - Great point, and you are correct in taking into consideration that on some properties the "dirt" value becomes greater than the value of the home.  Bottom line is homeowners need to be sure that they will get back what they lose.

Regarding the "Replacement" clause that you are refering to.  Be really careful here.  The devil is in the details.  I have had customers approach me with policies that listed their home as vastly under what it would cost to rebuild, but assured me that the agent had told them they would replace the home if something happened to it.  Never once has one of those policies been without a "limits of liability"  The limit of liability is the maximum the policy issuer is on the hook for. 

Consider this; can you ever imagine a company of any kind writing a completely blank check for services to be rendered with no consideration of the premium?  Any policy on a home will somewhere in it have a description of the home, and a maximum they will pay to reconstruct that home, and this will affect the premium.  The description has to be accurate, and consequently the coverage should be correct.

A great resource for this topic is the online documentary that PBS did regarding the California forest fires.  This article has numerous testimonies from people that bought policies they expected to replace homes, even though the liability limits were too low. 

Barb - I believe you are referring to homes that contain features which are no longer common place.  A good example of this would be an old home with hardwood or exotic wood furnishings that may require artisan crafting to replace.  If the decor was standard practice for the time period some replacement cost calculators will calculate those features in for the sake of determining replacement value.  If these features are one of a kind features you go down a completely different path all together.

The video taping of your property is something I really encourage my clients to do.  Many policies seek to replace personal property at replacement value up to the limits of the policy.  This means that your television may have been 5 years old at the time of a fire, but the policy intends to replace it with like make and model on todays market (this is good, the way you want it).  But before anything can be replaced at all you have to know what you owned that needs replaced.  Very few of us could sit down and write out a list of all we owned today including make and model.  Certainly we can't imagine being able to do this shortly after a catastrophic event.  So in order to be prepared have a record of it.  An inventory list or even easier a video tape diary of sorts.  Either of these need to be kept in a secure location.