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Home Insurance: Understanding Reconstruction Costs

Connect with a broker

What do you think the broker bases his recommendation on: 

  • The price paid?
  • The municipal evaluation?
  • The cost of reconstruction?

In fact, it is the reconstruction cost that determines the amount of protection for your building in your home insurance contract. Reducing this amount in order to lower your insurance premium could have negative impacts. 

3 Different Things You should Consider when Evaluating your Home
  1. The market (sale) value of a house is influenced by several factors: location/neighborhood, land value, style and interior design, whether or not the seller is in a hurry, etc. It can therefore be higher or lower than the cost of reconstruction.
  2. Property assessment serves as an equitable tax base for municipal and school board funding. It is based on the actual value of the house and land and is a "global estimate" of the property, not an individual one.
  3. Replacement cost, or reconstruction cost, is the cost of rebuilding your home to "like-new" condition should it be destroyed, for example by fire. This amount is not related to the value of the land. Rather, it depends on the change in the price of materials since the date of construction, the cost of skilled labor to do the rebuilding, the cost of clearing and demolishing before rebuilding, etc. Often, rebuilding costs more than building!

In order to determine the cost of reconstruction, your insurance broker will ask you questions about your home: the year it was built, the size, the type of construction, the materials used, etc. Your broker will use a work tool to incorporate your answers. Using a scale, this tool suggests an approximate cost for rebuilding your home, allowing your broker to offer you a premium and coverage that meets your unique needs.

Insurance Broker or Building Appraiser?

Despite their expertise and care, your property and casualty insurance broker is not a licensed appraiser. If you want to be sure of reconstruction costs, the safest thing to do is to hire a professional appraiser.