Replacement cost is what it would cost to rebuild your home from scratch using similar materials and quality. Market value is what your home would sell for, which includes land value, location desirability, and market conditions.

Your insurance coverage should be based on replacement cost, not market value. Land doesn't need insurance (it can't be destroyed), so it's excluded from dwelling coverage calculations.

This is common, especially in areas where land is cheap or the housing market is depressed. Rebuilding a home is expensive due to labor costs, materials, permits, demolition, and debris removal.

In Nevada, many homes in older neighborhoods have modest market values but would cost significantly more to rebuild with modern construction standards, permits, and labor rates.

Extended replacement cost coverage pays an additional percentage (usually 25-50%) above your dwelling coverage limit if rebuilding costs exceed your policy amount. Guaranteed replacement cost coverage pays whatever it takes to rebuild, with no percentage cap.

This protection is crucial during periods of high inflation, material shortages, or natural disasters when construction costs spike. We strongly recommend adding this coverage for just $50-150 more per year.

Review your replacement cost annually when your policy renews. Construction costs fluctuate due to inflation, material prices, and labor availability. Your insurance company may automatically adjust your coverage, but you should verify it's still accurate.

Also recalculate after major renovations, additions, or upgrades (new roof, kitchen remodel, pool installation, etc.). These improvements increase your replacement cost and require higher coverage limits.

If you're underinsured and your home is destroyed, you'll receive only what your policy covers—leaving you to pay the difference out-of-pocket. Many policies also include a co-insurance clause: if you're insured for less than 80% of replacement cost, you'll face penalties even on partial claims.

Example: Your home costs $400,000 to rebuild but you only carry $300,000 in coverage (75%). After a total loss, you'd receive only $300,000, forcing you to cover the $100,000 shortfall yourself. Underinsurance is one of the biggest mistakes homeowners make.

Most standard homes don't require a professional appraisal—online calculators and your insurance agent's estimates are usually sufficient. However, consider getting an appraisal if your home:

• Is custom-built or architecturally unique
• Has high-end finishes or luxury features
• Includes historical or specialty construction
• Is valued over $750,000 in replacement cost

A professional replacement cost appraisal typically costs $300-600 and provides documentation for insurance purposes.