Insurance-to-value (ITV) is the relationship between the amount your home is insured for and what it would actually cost to rebuild or replace it from the ground up. It’s important to know that this isn’t the same as your home’s market value or what you originally paid for it. ITV focuses on reconstruction costs—including materials, labor and compliance with current building codes—all of which can change significantly over time.
Why ITV Is Important
Rebuilding costs today are rising faster than many people realize. Inflation, labor shortages and supply chain disruptions have all contributed to higher construction expenses. As a result, you could be underinsured, meaning your current coverage might not be enough to rebuild your home fully after a total loss event, such as a fire, tornado or severe storm.
This is why understanding your ITV ratio (coverage amount divided by replacement cost) is so important. ITV measures how closely your insurance coverage aligns with the actual cost of rebuilding your home. If your ITV is too low, you may face a significant coverage gap, potentially leading to unexpected out-of-pocket costs and serious financial stress.
Common Misconceptions About Homeowners Insurance Coverage
You might think your home’s market value is enough to determine your insurance coverage, but that’s a common misconception. Market value reflects what your home could sell for, which includes factors like land value and location desirability. However, these aspects don’t necessarily directly influence the cost of rebuilding your home. Instead, your insurance should be based on reconstruction cost—what it would take to rebuild your home with similar materials and workmanship at today’s prices.
Another assumption is that if you haven’t made any changes to your home, your coverage is still adequate. Yet, even if your home hasn’t changed, the cost of materials and labor likely has. This means the amount it would take to rebuild today could be significantly higher than when your policy was first written.
While many policies include inflation protection, it’s important to understand that this feature has limits. Inflation protection can adjust your coverage over time, but in today’s fast-changing market, it may not be enough to fully cover a rebuild. That’s why it’s critical to review and update your policy regularly.
What You Can Do
Taking a few proactive steps can help ensure your homeowners insurance keeps pace with your property’s value and protects you from unexpected costs. Consider these tips:
- Review your coverage annually. Make it a habit to check your policy limits each year. If you’ve renovated, added square footage or upgraded materials, your coverage may need to be updated to reflect those changes.
- Request a replacement cost estimate. Ask your broker or insurer to arrange a professional estimate of what it would cost to rebuild your home today. These estimates are based on current construction data and give you a much clearer picture than market value alone.
- Understand extended or guaranteed replacement cost options. Some policies offer extra protection if rebuild costs exceed your coverage limit. These options can provide valuable peace of mind, especially in a volatile market.
- Keep records of upgrades. Keep documentation—like photos, receipts and contractor invoices—of any improvements you’ve made. This helps ensure those upgrades are factored into your coverage.
We’re Here to Help
Ensuring your home is adequately insured is essential, particularly as rebuild costs continue to rise due to inflation, labor shortages and material price increases. Ollis/Akers/Arney Insurance & Business Advisors can review your coverage and assess your ITV ratio so you can feel confident that your home is adequately protected now and in the future. Contact us today.
© 2025 Zywave, Inc. All rights reserved. This Know Your Insurance document is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
