The Difference between Value of our homes and the Reconstruction Costs insurance companies are supposed to insure you for.
Value of your home has to do with:
Those are just a few way the value of your home is determined. Value meaning what you would be able to sell your home for.
Insurance companies should be insuring you for what they can rebuild your home for not the value.
For an example; Let’s say you have a nice 1500 sq. foot ranch on a lot in a subdivision, Value is at $180,000. That same home on an all sports lake would be valued at closer to $350,000. Yet you move that same home to a small inner city lot and it might now be worth $50,000. To the insurance companies it doesn’t matter where the home is. To rebuild that home on a lake or the inner city is going to cost very close to the same amount.
So if you are ever wondering why the insurance companies have your home insured for so much more than it is worth, this is why. Hopefully this make it a little more understandable.