Should I insure my home for market value or rebuild cost?

My previous insurer dropped me after a water damage claim, so now I'm shopping for new coverage. USAA wants to insure my house for almost twice what I think it's worth based on rebuild cost. Why would I insure it for more than its market value? Why don't other agents bring this up?

Insure for the rebuild cost, not the market value. This is one of the most important and most misunderstood concepts in homeowners insurance, and USAA is giving you good advice.

The rebuild cost is what it would take to completely reconstruct your home from the ground up, including labor, materials, permits, and debris removal. Market value is what your home would sell for on the open market, factoring in things like location, lot size, and school district. Those two numbers are often very different.

Land is a big part of why. If your house burns to the ground, the land is still there. You're still getting the same location and neighborhood that made you want the house in the first place. Insurance only needs to cover the structure, which is why your dwelling coverage amount and your home's sale price rarely match up. In a hot real estate market, market value might be much higher than rebuild cost. In a depressed area, the opposite can be true.

Construction costs have risen sharply in recent years, particularly in Louisiana, which is why rebuild cost can sometimes run significantly higher than what a home would sell for. Labor, materials, and current building code requirements all factor in.

As for why other agents aren't raising this: not all use the same rebuild cost estimator tools, and some may default to a lower amount to fit a budget. But USAA is being thorough. If you're still shopping, ask other agents the same question and compare the rationale.

The risk of underinsuring is real. If your coverage falls short of actual rebuild cost, you're responsible for the difference out of pocket. You'll also want to make sure you're insuring for at least 80% of rebuild cost to avoid penalties in the event of a claim. I hope this helps! If you decided to get more quotes or have questions, our agents are always here to help.