Yvon Rudolphe is a professor, PhD student researcher and coordinator of OCVI2 at the Ivanhoé Cambridge Chair in Real Estate at ESG UQAM. He acts as a facilitator for master’s students in their research in real estate concentration. He is currently a student on a PhD in science, technology and society as part of research on the impacts of innovations in the value of sustainable buildings. He is also a member of the training committee of the Ordre des évaluateurs agréés du Québec.

What exactly is insurance value?

November 3, 2021— It is clear that confusion still persists today with the concepts of market value and insurance value. Indeed, many people and stakeholders in the real estate field do not distinguish between these two values, as well as between the concepts of replacement cost and reproduction cost, or even between the cost of new construction and the cost of reconstruction. But, first of all, how to distinguish the market value from the insurance value? Let us try here to disentangle all that.



Market Value

In the finance industry, discussions often revolve around value; this one is transactional, referring to market value. According to the definition of l’Ordre des évaluateurs agréés du Québec (OEAQ), the market value:

“Is the most probable sincere price of the actual or presumed sale of a building, on a given date, on a free market open to competition and meeting the following conditions:

  • the parties are well informed or well advised of the condition of the building, market conditions, and reasonably well advised of the most likely use of the building;
  • the building has been put up for sale for a sufficient period of time, taking into account its nature, the importance of the price and the economic situation;
  • payment is expressed in cash (Canadian dollars) or cash equivalent.
  • the sale price must disregard any considerations unrelated to the building itself and must represent the true uncluttered consideration of the impact of incentives, conditions and advantageous financing.”

On the other hand, the value is established according to an objective (market, in this case) and for very specific purposes, either for the purposes of financing, taxation, management, expropriation, or others. The report requires special analysis depending on the purpose for which the report is intended and may lead to a different value. In addition, establishing the market value of a building considers the land, which is not the case for the insurance value.

Finally, market value can be estimated in the present, past or future based on a new construction, whether depreciated or not, as the case may be. While the insurance value is established on the assumption of the future loss of the property based on new reconstruction or a depreciated value.

There is therefore no link between the market value of a good and the insurance value.

Insurance value

The insurance value represents the value of real estate, for example, in collective assets held in co-ownership, for residential, commercial or industrial purposes with regard to the insurable loss of these goods. For a building, this value is often based on the calculation of the cost of replacement, restoration or reproduction in reconstruction. The insurance value includes, in particular, the new construction standards at the date of the report.

The insurance value includes all losses attributable to a claim. The applicant could also indicate other insurable property in addition to the building that it would be agreed to add to the expertise mission. For example, the insurance value could include, among other things, lost income, additional living expenses (when the building is uninhabitable), furniture, leasehold improvements to commercial premises or any other item.

Insurance value can include:

  • a replacement reconstruction value for a standard building;
  • a reproduction reconstruction value for a building designated atypical or heritage (but not designated by regulation), or a restoration value;
  • a redevelopment value for landscaping;
  • replacement or restoration value for movable property, etc.

However, in the presence of acquired rights for example, the insurance value might not include reconstruction according to the new zoning regulations in force (if applicable). This aspect should be considered with the chartered appraiser. Indeed, extraordinary costs could be involved in the event that there is a loss of acquired rights during a major disaster. This aspect should be considered with the appraiser and the insurer. In addition, we can also establish the insurance value of the loss attributable to key employees according to employment contract agreements, for example. An impact analysis and a risk assessment must be carried out.

It is important to understand the exclusions indicated in the insurance contract. In fact, it is up to the insured to validate, with his insurance broker, the exclusions from the contract as well as the assumptions made by the appraiser once the clauses of the insurance policy have been specified. For example, items such as foundations, underground drainage and underground structures are considered exclusions in some insurance policies and also landscaping.



In property valuation as well as in estimation, cost is defined as “the amount of money required to reproduce or replace a property.” It is therefore not synonymous with “value” and should not be interpreted as such.

The Replacement Cost

This term means what it costs to substitute one good for another of the same utility and comparable accommodation, but without being identical. As long as they are still available in the market, the materials used in the replacement cost calculation are those used in the property to be valued.

The Cost of Reproduction

This term means what it costs to reproduce a good identically to the original, that is, using the same materials and the same construction methods. Thus, there is a fundamental difference between “replace” and “reproduce”; the first being substitution by way of a similar good and equivalent accommodation, while reproduction means the complete copy of the good in question.

New Construction and Reconstruction

So far, everything is fine. But beware! Replacement cost and reproduction cost are calculated differently depending on whether it is a new construction or a reconstruction.

Indeed, “reconstruction” involves, among other things, having to deal with an already established location, particular elements of the land and building components to be preserved, not to mention the constraints and unforeseen events of all kinds. Its cost will therefore necessarily be higher and could even vary significantly upwards, compared to the cost associated with a new construction carried out without constraint, without urgency, or hindrance to its erection.

“Not knowing awakening leads to confusion.” Lao Tzu



Yvon Rudolphe, MBA fin., É.A., Adm.A.

Heritage consultant and administrator

Appraiser and real estate broker


Phone.: (514) 592-9257

Email: [email protected]



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