Being Insured To Value

Why Getting It Right Matters For Both Businesses And Homeowners

When it comes to protecting your biggest investments—whether it is your home or your business property—having insurance is just the beginning. The real key is making sure you are insured to value. But what does that actually mean?

Here we will break down what it means to be insured to value, why it matters, and the crucial difference between replacement cost and market value—two concepts that are often confused but can make a world of difference when it comes time to file a claim.

What Does “Insured To Value” Mean?

“Insured to value” refers to having enough insurance coverage to rebuild or replace your property at today’s construction or replacement costs in the event of a total loss. Being underinsured can result in devastating out-of-pocket costs after a disaster. On the flip side, being overinsured may mean you are paying for coverage you do not need.

Replacement Cost vs. Market Value: What’s The Difference?

Let’s clear up a common misconception. Many policyholders assume that the amount they paid for a property—or its current real estate value—is what should determine how much insurance they need. But insurance does not work that way.

Replacement Cost (RCV)

This is the cost to rebuild, repair, or replace your home or commercial building with materials of like kind and quality at today’s prices, regardless of what you originally paid or what the property is worth on the real estate market.

Includes labor, materials, and construction costs.
Does not include the value of the land.
Can fluctuate with inflation and supply chain issues.

Example: If a fire destroys your commercial building, replacement cost coverage ensures you have the funds to rebuild it just as it was before the loss—even if construction prices have risen.

Market Value

This is what your property is worth on the open market, including land value, location, economic trends, and the desirability of the neighborhood.

Influenced by supply and demand.
May be less than or more than the cost to rebuild.
Not used for determining adequate insurance limits.

Example: You may have bought your home for $400,000, but if it costs $500,000 to rebuild it today due to rising construction costs, market value won’t provide enough insurance protection.

Why This Matters For Commercial Businesses

Business owners often underestimate how much it would cost to replace their building, equipment, or inventory. Factors like custom installations, machinery, and specialized materials can make replacement significantly more expensive than expected.

Being underinsured means:

Your business might not qualify for full replacement after a loss.
You could face major downtime and expenses not covered by insurance.
You risk triggering coinsurance penalties, which reduce the payout if you are not insured to a certain percentage of the replacement cost.

Why This Matters For Homeowners

Homeowners may assume their policy limits are fine based on their home’s market value, but:

Construction costs have risen dramatically in recent years.
New building codes may require updates during rebuilding.
Standard policies may not automatically adjust for inflation unless endorsed with inflation guards or similar provisions.

A simple kitchen fire could cost much more than expected to repair if you are not insured to value.

How to Ensure You Are Insured To Value

Here’s how both homeowners and business owners can stay properly protected:

Get A Professional Valuation: Work with your insurance agent to calculate an accurate replacement cost using industry-standard tools.
Review Annually: Your policy should be reviewed each year, especially after renovations or equipment upgrades.
Include Building Ordinance And Inflation Coverage: These optional coverages help ensure you are not left short when rebuilding to current codes.
Work With An Experienced Agency: Insurance is not one-size-fits-all. We at Shafer Insurance Agency can tailor your policy to your specific needs.

Do not wait for a disaster to find out you are underinsured. At Shafer Insurance Agency, we are here to help you protect what matters most. Whether you are running a business or managing your household, being insured to value is the foundation of any solid insurance plan.

Being Insured To Value