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Insurance companies require your home be insured for replacement value if you are purchasing that type of policy.  This replacement value is most often higher than the purchase price of a new home and it is almost always more than the market value (amount the home is currently valued and could be sold for in today's market).

There are two leading factors:

1) Cost of Replacement/Reconstruction is higher than it would be to purchase a newly built home.  General contractors gets discounts on new home construction including materials and cost of subcontractors (plumbers, framers, electricians, etc).  Also, there is usually not a time factor involved when a new home is being built.  This causes the price of material and labor to be substantially higher.

2) Debris removal (clean up cost prior to repair work) is also included in the replacement value of your home.  This can be as much as 10% of the replacement value calculation.

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