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Replacement Cost and Market Value: What’s the Difference?


If we asked you what’s the difference between replacement cost and market value, what would you say?

In case you don’t know the answer, we’re here to quickly clarify what these two insurance terms mean.

 Re-place-ment Cost


 According to BusinessDictionary, replacement cost is defined as:

  1. “Current cost of replacing an existing asset or property with the same quality of construction and operational utility, without taking depreciation into account.”

In other words, replacement cost is what you can expect to pay to rebuild or replace your home using the same or similar materials that your home is made from.

If you have replacement cost coverage, this insurance coverage will help pay for or reimburse the amount spent replacing your home.

Mar-ket Val-ue


According to Investopedia, market value is defined as:

  1. “The price an asset would fetch in the marketplace.”

Market Value is basically how much your home is worth or could reasonably sell for in the housing market in your area.

Think of a car’s trade in value. Before you can trade in your car, your car is evaluated for its condition and age. Based on that info, you receive a price of how much your car is worth and if it’s even able to be traded in.

Market value works in a similar way just with a house instead of a car.

Before you can sell your home, you need to know the market value, or the home’s worth compared to other homes nearby.

What coverage does your policy have? What coverage do you need?

Like all types of insurance, it depends.

Everyone has different needs and situations. Don’t hesitate to reach out and make sure you have the coverage you need.

If you have any questions or need further clarification, feel free to contact us and we’ll be glad to help.


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Allied Insurance Managers's Bio

Headquartered in Rochester Hills, Mich., Allied Insurance Managers is one of the largest, privately-owned, independent insurance agencies in Michigan.