Is it possible to over-insure your house?

Staying in touch
Volume 16, Number 2
Insurance Brokers Association Canada

Sometimes we are asked, “why is the dollar amount of my home insurance more than the market value of my house?” It’s a good question and the answer relates to the cost to replace your home after a total loss.

Replacement value is defined as the cost to replace an entire building with one of like kind and quality without deduction for depreciation. How this value is calculated is quite different than the market value of a home – in some cases, it could even be higher than the purchase price of a newly completed home.

In many subdivisions, homes are built at the same time using bulk- purchased materials and efficient construction methods. If one of these homes were destroyed, the cost to reconstruct is often higher than the original building cost.

Extra costs are incurred for the demolition and removal of debris including dumping fees. Site access problems, the loss of bulk-purchasing power and the desire to rebuild quickly, can all lead to higher labour and material costs. In this situation, it’s easy to see why the cost to rebuild one house can easily be more than when it was first built.

If you are unsure about the amount of coverage needed to replace your home, please contact us. We have the tools to assist you in calculating your home’s replacement value.

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