Question for the PPOT brain trust

wdfifteen · wdfifteen's Garage

Asking for a friend - what if he had a house whose market value was $800k and replacement cost was estimated at $1.2 million. Assume life has changed, kids are raised and gone, life is winding down. This big house is no longer need and if it burned down tomorrow it would not be replaced with anything even close to this size.
This couple is settled into this home and don't want to uproot their lives and move right away, but are planning to move to a place of a size that is selling for $500k at today's prices in 5 to 8 years.

Would you insure the house for replacement cost, or market value?
Market value $800k
Replacement cost $1.2 million

sc_rufctr · 03-20-2025, 05:55 AM

That's easy - Replacement cost.

(what's the difference in premiums between Replacement cost and Market value? Probably not a lot)

MBAtarga · 03-20-2025, 05:59 AM

I'd confirm that the replacement cost as quoted in your post refers to the property improvements only - and not the lot/acreage. No sense in insuring land the house sits on.

fintstone · fintstone's Garage

If I had no intention of replacing a home if destroyed, I would insure at the market if there were significant savings. Having not burned a house down in the past 60+ years, I would bet I do not in the next several.

Of course, I only insure my cars for liability and comprehensive (not collision or towing). I have managed not to have an accident that was my fault and have managed not to have a car break where I could not get it home for about 50 years, so I am betting on me again. If I drive my new car (or one of my old 911s) into a tree...it is on me.

I have done the same with life insurance (as I have been very healthy) and invested the money instead. It has grown to the point where I am effectively self-insured for more than I would have purchased.

Over the years, my philosophy has saved me an incredible amount of money. Others might not enjoy the same results.

LWJ · 03-20-2025, 10:08 AM

I work in the industry. Replacement Cost is standard. There is a provision for NOT replacing with a similar building. In that case, actual cash value is typically given. Call your agent for details. Personal lines isn't my strong suit.