Commercial and rental property should generally not be insured simply according to its purchase price or market value.
Insurance companies commonly calculate reconstruction cost based on factors such as:
- Building square footage
- Construction type
- Number of stories
- Building materials
- Roof type
- Building age
- Local labor costs
- Local material costs
- Building features
- Occupancy
Market Value ? Replacement Cost
A building purchased for $500,000 could potentially require substantially more or less than $500,000 to reconstruct.
The land itself is also not normally insured as part of the building replacement value.