Replacement Cost vs. Actual Cash Value

Although insurance cannot do anything to ensure your love and dreams are fulfilled, it can ensure that they are not crushed when disaster strikes. Oklahoma has had its share of catastrophes the last few years – tornadoes, ice and snow storms, earthquakes, hail damage, and most recently, massive wildfires.

Many Oklahomans have lost their homes and all of their belongings and are without insurance to replace their possessions. With Oklahoma’s increasing disasters, homeowners and/or renters insurance is extremely important.

One of the questions I get asked the most when writing an Oklahoma Home Insurance is, “Why are you putting that much coverage on my home when I could only sell it for half of that? It’s too much coverage!” This is something I hear on an almost daily basis – and a great question!

The answer is that I am covering your home on a replacement cost basis – the amount of coverage it would take to rebuild the home with the same like, kind, and quality of home and at the same location as your current home.

There are several factors that are considered in figuring the replacement cost of a home – how big the home is, how many bathrooms, the quality of the kitchen and bathrooms, the materials used to build the home, attached garages and/or carports, the type of foundation the home is built on, and any attached porches, decks, or patios.

The amount you would be able to sell the home for is called the actual cash value or market value of the home. You can take the exact same house and put them in two different neighborhoods – one neighborhood is a gated community on the golf course and the other neighborhood is the “enter at your own risk” kind of neighborhood. The house on the golf course would easily sell at a higher price than the house in the sketchy part of town. This is the market value of the home. However, if both of these homes were completely destroyed, it would cost essentially the same amount to rebuild each house.


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