A common insurance myth is that real estate value, or market value as it is often referred to, is equal to the insurable value of your property. However, the market value and the insurable value of a property are two very different estimates. It’s important to understand the differences between the two values in order to ensure that you have sufficient coverage on your home.

Market Value

Market value is defined as the estimated value for which your property will sell.

In order to determine the current market value of your home, several factors will be considered during a real estate appraisal, including:

• Lot size
• Property square footage
• Number of rooms
• Condition of the property’s exterior (e.g. roof, windows, foundation, bricks, etc.)
• Condition of the property’s interior (e.g. kitchen, bathrooms, furnace, etc.)
• Location of your property
• Rent growth rate
• Capitalization rates
• Real estate economy (i.e. buyer demand and market supply)

Insurable Value

Insurable value is an estimate of the costs that would be required to completely reconstruct and replace your property in the event of a total loss.

Unlike market value, insurable value does not factor in the cost of acquiring the land, but rather calculates the amount required for the building materials and contractors necessary to completely reconstruct your home.
Many factors are considered when determining the insurable value of your property, including:

• Current construction costs
• Current material costs
• Current labour costs
• Age of the property
• Size of the property
• Special/custom features
• Risk assessments in your area

Both the market value and the insurable value of your property tend to change over time. Home insurance policies are reviewed annually to re-evaluate your property rebuilding costs. Therefore, the insurable value of your property is as accurate and up-to-date as possible---factoring in rising material and labour costs, and increased risk assessments in your area. In the event of a loss, you would have sufficient coverage to get you back to where you started.

If you would like to learn more about the insurable value of your property, or would like to receive a quote, please contact your OTIP insurance broker at 1-888-892-4935.