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Replacement cost insurance coverage provides you with enough funds to replace your damaged or destroyed home — and sometimes belongings — regardless of any depreciation.

Your home’s replacement cost value is the amount it’ll cost to repair or replace your home in case of damage or loss. This number determines how much insurance coverage you should buy, so having an accurate replacement cost value is essential.

Here’s what you need to know about replacement cost value:

What is a home’s replacement cost value?

Replacement cost value is the amount of money it would take to rebuild your home with the same kind of materials or replace your damaged or lost personal property. It doesn’t take depreciation into account. Replacement cost coverage differs from market value, which is the price buyers are willing to pay for your house. Your home’s replacement cost isn’t necessarily its current market value.

Keep in mind: The replacement cost value of a home refers to the home, or dwelling, but not the land or lot it sits on. For example, if you paid $400,000 for your home, that price reflects both the cost of the home and the lot. If the lot portion of the transaction costs $75,000, you would not insure that portion with replacement cost coverage — you’d only insure the house, which in this case would be $325,000.

The Credible marketplace, which includes services by Young Alfred, makes it easy to find a carrier and policy that’s right for you.

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How do insurers determine replacement cost values?

Your insurance company will determine replacement cost values for your home insurance policy by using the amount it would take to rebuild your home with similar materials of the same quality. If you choose to include personal property in this coverage, the price you paid for the items determines your replacement costs . So it’s important for you to provide your insurer with accurate details for your house and belongings, such as:

  • The type of exterior wall construction
  • The type of roof (and materials used)
  • Features such as an attached garage
  • Personal belongings, such as silverware, jewelry, and clothing

You can determine your home’s replacement cost value in a few ways:

  • Hire a professional appraiser. The most accurate way to get an estimate of your home’s replacement value is to hire a professional appraiser who can come out to the home to inspect its unique features.
  • Obtain an insurer’s appraisal. Home insurers can calculate your home replacement value, usually by using software that provides an estimate.
  • Obtain an estimate from an online replacement cost calculator. You can find tools online that can help you estimate your home’s replacement value.

Learn more: What Does Homeowners Insurance Cover?

How to estimate the replacement cost value of your home

You can also estimate the replacement cost value of your home yourself. Here’s how:

  • Determine the square footage of your home. You can do this by looking at your property deed, by searching property records through your county appraiser’s website, by searching online public records on sites such as Zillow or Realtor.com, or by measuring the rooms in your house. To get the dimensions yourself, measure the length and width of a room, then multiply those numbers together to get the square footage of the room. Once you’ve measured all rooms in your home this way, add up the square footage of each room to get your home’s total square footage.
  • Research local construction costs for your area and home type. The type of home you have (Mediterranean, ranch, etc.) affects how much you’ll pay to rebuild it. Look into building costs in your community for your home type to help you estimate your home’s replacement cost value, or ask an appraiser or real estate agent for the average cost where you live. For example, the average cost to rebuild a Victorian home in California is between $150 and $350 per square foot, according to HomeAdvisor.
  • Multiply the square footage by local building costs. Take the total square footage of your home and multiply it by the local building costs per square foot for your home type. A real estate agent or appraiser should be able to give you an idea of average building costs in your area. For example, a 3,000-square-foot home multiplied by $150-per-square-foot construction costs is $450,000. This is the estimated cost to rebuild your home.

Can you update your home’s replacement cost value?

It’s a good idea to review your homeowners insurance policy yearly to ensure you have enough coverage on your home.

If you think you’re over- or underinsured, you can provide your insurer with an updated replacement cost value for your home. Let your insurance carrier know any time you upgrade your home, since this could affect your home’s replacement cost value.

What factors affect the replacement cost value of a home?

Your home’s replacement cost value depends on several factors:

Square footageThe more square footage, the more it will cost to replace your home.
Age of homeWhen your home was built often dictates the materials that were used in its construction, which help determine replacement cost.
Style of homeThe more stylistic features of your home, the more expensive it’ll be to re-create the design.
Features and finishesThe higher the quality of your finishes, the more it’ll cost to replace the home with similar features.
FixturesThis includes your cabinets, countertops, heating and cooling system, and electrical system. The higher the quality of those items, the more expensive replacement costs will be.

Other types of replacement cost coverages to consider

A replacement cost estimate is merely a ballpark number. If a disaster happens, prices could rise to reflect the increased demand for housing supplies. In those cases, the money you have slated for replacement cost coverage might not go as far as you planned.

To protect against that happening, you might want to consider the following types of coverages:

  • Extended replacement cost: This adds to your dwelling coverage and is designed to cover extra replacement costs up to a predetermined percentage, typically between 10% and 50%. It covers both improvements you’ve made to the home and inflated building costs. For example, if you have $400,000 in replacement cost coverage — but demand for construction spikes after a storm and your bill is $460,000 — extended replacement coverage of 20% would cover the difference.
  • Guaranteed replacement cost: This is similar to extended replacement cost but provides even more additional coverage. It covers the total amount to rebuild your home and replace all your belongings, no matter the cost.

Need home insurance?
The Credible marketplace, which includes insurance services by Young Alfred, makes it easy to find a carrier and policy that’s right for you.

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Disclaimer: All insurance-related services are offered through Young Alfred.

About the author
Laura Agadoni
Laura Agadoni

Laura Agadoni, author of “New Home Journal: Record All the Repairs, Upgrades and Home Improvements During Your Years at…,” is a real estate writer, landlord, and REALTOR®.

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