When it comes to homeowners insurance, one of the most difficult parts of being an insurance agent is sometimes explaining to people the difference between replacement cost and market value. All too often people only want to insure their homes for what they paid for them. However, homeowners policies need to insure homes for 100% of their replacement cost. Whereas market value is what your home is currently worth, replacement cost is how much money is needed to remove the rubble, re-file permits, and reconstruct your home to the same state it was in at the time of loss. I recently had a couple pay $600,000 for their new home and they couldn’t understand why the replacement cost of their home was $900,000. So, REMEMBER, your homeowners insurance doesn’t care what you paid for your home! It cares about how much money is needed to rebuilt it in the event it is totally destroyed.