When you insure your house, the most important value to determine is the replacement value. That’s the amount that it will cost to rebuild your house the way it is now. Market value is the value of your home in the real estate market. That value can change dramatically based on current market conditions. Several years ago, the market value of your home may have been different than it is today.
The assessed value is what your community uses to determine your tax base. When you look at the assessed value on the property appraiser’s website, there was no way that you could rebuild your house for that amount. The assessed value also changes based on real estate market conditions, so it can fluctuate, just like the market value.
Of course, insuring to the mortgage value would give you only enough money to pay off the bank if your house was destroyed. But what about all the equity you have? That’s your hard-earned money there, so you want to make sure you get that back, too.
The fact of the matter is this: the cost of constructing a new house like the one you have now is the proper amount to insure for. If you were to have a total loss, you would want to be able to rebuild your house. You don’t want to just pay off your mortgage, or settle for something less than what you have now.