Homeowners insurance question

[2moretrees]

What is the difference between replacement value fair market value in regards to homeowners insurance. Which one is better to get?

[jhd815]

Re: Homeowners insurance question

As I understand it "fair market value" is the price someone would be willing to pay for a house such as yours. For example, you may consider the value of your home to be $200,000 but the insurance company may say it's only worth $175,000 based on similar properties as yours. Therefore, you would make up the difference between the two values should your home need to be replaced.

"Replacement value" is the cost of replacing the property with similar property. That's my understanding, however I am not an insurance agent.

It really would be best to consult an agent, especially your own, as policies can vary in their definitions from one company to another.

Good luck!

[terry1156]

Re: Homeowners insurance question

Replacement - The insuance company will pay the cost to replace your house and contents (usually up to a specified amount)

Fair Market - The cost of the item plus depreciation. In this case you would only receive a fraction of what the items cost (for your contents)

I think you would want to be able to replace everything you lost with similar, new items if they were ever destroyed. Therefore make sure that both your home and its contents are covered by replacement-value insurance. This will cost more than fair market, but I think it is worth the cost.

[2moretrees]

Re: Homeowners insurance question

Thank you both for the answers. That is what I needed to know.