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Home Sense

Why Is My Home Insured for More Than I Could Sell It For?

While the market value of your home is commonly based on tax assessment records, real estate appraisals or the recent selling prices of similar homes in your neighborhood, your homeowners insurance limit is based on what it would cost to replace your home if it was completely destroyed. This is frequently a different figure from what your home could fetch on the open market.

Erie Insurance uses a program called Home Cost Estimator to determine how much it would cost to rebuild a house from the ground up. “The estimator uses information about a dwelling’s characteristics to determine the estimated replacement cost,” says Terry McConnell,vice president, Personal Lines Underwriting, at Erie Insurance. “The information is pulled from several sources to come up with a very close approximation of what it would cost to reconstruct a house.”

Factors affecting a home’s reconstruction value

Many different factors affect how much it would cost to reconstruct a home. Some of the main ones include:

  • The home’s square footage
  • The materials used in the interior and exterior construction
  • The style of the house
  • Any special or custom-built features like fireplaces or exterior trim
  • Any improvements or additions made to the home
  • The local construction costs

It’s common for a house to have a significantly higher homeowners insurance limit when it’s an older home.

“Original building materials common to older homes like plaster, hardwood floors, full-dimensional lumber and trim make the replacement cost of older homes higher than a modern home of the same size and style,” says McConnell.

A better way to insure your home

When insuring your home, the value should be equal to the amount it would cost to replace the home. You’ll also want to make sure your home is covered on a replacement cost basis rather than an actual cash value basis.

Actual cash value coverage makes a deduction from the settlement based on depreciation. Meanwhile, replacement cost coverage pays the actual cost of replacing your home with materials of like kind and quality without a deduction for depreciation.

To illustrate, imagine you paid $10,000 for a new roof. It depreciates $1,000 every year. If your roof was destroyed by a fire in Year Four, you would only get $6,000 to replace it under an actual cash value settlement. A replacement cost settlement would replace the damaged portion of the roof without a deduction for depreciation.

Many ERIE homeowners policies automatically insure homes on a replacement cost basis. An Erie Insurance agent can tell you more about replacement cost and how your homeowners insurance works.

Find out the reasons why your home might be insured for more than its real estate value. /blog/home-insured-for-more-than-selling-price Erie Insurance https://www.erieinsurance.com/-/media/images/erieinsurance/erieinsurancelogo.png

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ERIE® insurance products and services are provided by one or more of the following insurers: Erie Insurance Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship City Insurance Company and Erie Family Life Insurance Company (home offices: Erie, Pennsylvania) or Erie Insurance Company of New York (home office: Rochester, New York).  The companies within the Erie Insurance Group are not licensed to operate in all states. Refer to the company licensure and states of operation information.


The insurance products and rates, if applicable, described in this blog are in effect as of May 2016 and may be changed at any time. 


Insurance products are subject to terms, conditions and exclusions not described in this blog. The policy contains the specific details of the coverages, terms, conditions and exclusions. 


The insurance products and services described in this blog are not offered in all states.  ERIE life insurance and annuity products are not available in New York.  ERIE Medicare supplement products are not available in the District of Columbia, New York and Wisconsin.  ERIE long term care products are not available in the District of Columbia and New York. 


Eligibility will be determined at the time of application based upon applicable underwriting guidelines and rules in effect at that time.


Your ERIE agent can offer you practical guidance and answer questions you may have before you buy.