When purchasing property, whether it be a home or commercial, you will be asked to provide evidence of insurance. When you call your agent, he or she will most likely utilize a replacement cost estimator. This tool will help your agent adequately insure the property on a replacement cost value. When insuring a property on a replacement cost basis, the limit is based on what it would take, financially, to build the property back to the condition prior to a covered loss.

What variables are considered when determining the replacement cost of a building?

  • Location
  • Use of property/building
  • Square footage
  • Story Height
  • Type of roof
  • Type of heating/cooling system
  • Exterior/Interior wall materials
  • Floor materials

Many insureds who are not familiar with replacement cost are often shocked by the value that is listed on the property insurance quote proposal. Many believe that the building limit is either too high, or too low. They are thinking about the market value which is simply, the value in which the property was purchased or the insured's financial interest.

A survey may be completed by the agent if their capacity allows them. After the policy is written, it is customary for companies to perform a property inspection to ensure that the property is insurable.


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