How Your Home’s Value is Determined if it’s Destroyed
Learn how your home’s value is determined if it’s destroyed by fire or a natural disaster.
Q. My MetLife Auto & Home® homeowners policy has replacement cost coverage and inflation protection. How would you determine the current market value of our home if it were to be totally destroyed by fire or a natural disaster?
A. Market value doesn’t play into replacement cost coverage. There is a key difference between replacement cost and market value. MetLife Auto & Home will calculate the replacement cost of your house—that is, the amount of money it would take to rebuild the home you lost. The market value of a home—what someone might pay for it on the open market—is based upon its location. Replacement cost coverage, however, is based on the cost of rebuilding, including the necessary debris removal. It is rare for the two to match each other.
Take this example from California: The market value of a 900-square-foot house on the beach could be $1 million. But is the house itself worth $1 million? No. If it were destroyed by fire, the insurance company would pay to rebuild the structure, which might cost only $300,000. Remember, it’s the land that’s worth so much money in this instance, and even a fire wouldn’t change the desirability of that oceanfront property.