Over 70 percent of homes in the United States are underinsured.  And, of those homes, 70 percent are underinsured by at least 30 percent.  This is a major problem!  The confusion between market value and replacement value is where many of these problems originate.  Many people base their insurance coverage on the market value of their home.  Market value is what a buyer will pay for your property, but this is irrelevant if your home is destroyed.  What you should really be basing your coverage on is replacement value.  This is much more complicated to compute. 
 
When computing replacement value you must figure in all of the costs of rebuilding your home.  This is often 20-30 percent more than new construction because of the added demolition and removal costs.  Once the land has been cleared, you will need to add the cost of actually building your home by multiplying the square footage by the average cost per square foot.  You can find out average square footage costs from your local builder’s association or builder’s union.  Then, you need to add in additional money for upgrades and improvements that you have made.  Also, check your local building codes because changes in codes since your original home was built can cost a bundle when rebuilding.  In some cases, it may cost even more to rebuild your home than the market value.  This is often the case in run-down areas where land values have fallen.  In any case, don’t just base your homeowner’s coverage on the lender’s requirements.  These often only cover the mortgage balance leaving you with nothing.  If you have any other questions pertaining to this issue, please don’t hesistate to contact us.