When you’re buying homeowners insurance, knowing your home’s replacement cost will help ensure you have enough coverage. Replacement cost is the amount of money you need to completely rebuild your home — including labor and materials — after a covered loss.
You can calculate your home replacement cost using different methods, such as a home replacement cost calculator or hiring a professional appraiser. But it’s also possible to estimate your home’s replacement cost yourself by following a few simple steps.
Here’s what you need to know about calculating home replacement cost:
- How to calculate your home’s replacement cost
- What factors affect my home’s replacement cost?
- Types of home replacement cost policies
- Actual cash value vs. replacement cost value
How to calculate your home’s replacement cost
You can determine your home’s replacement cost value in several ways, including hiring a professional home insurance appraiser, working with an insurance agent, and using online calculators. You can also estimate this cost yourself for free.
The quickest way to get an estimate is to find the average cost per square foot of homes in your area. Look for homes within a half-mile radius that are similar to your home and were recently sold. Multiply that average cost per square foot by your home’s total square footage.
Replacement cost = Total square footage x per-square-foot construction costs in your area
What factors affect my home’s replacement cost?
Many factors influence the replacement cost of your home, such as:
- Age of the home: The age of your home reflects the standards, techniques, and materials that were used when building your home. It also indicates the type of major appliances and the heating, cooling, and electrical systems that you have. Older homes tend to cost more to replace, since they often have unique features and materials that are harder to replace.
- Total square footage: Generally, a larger home will cost more to rebuild, so your policy price may increase accordingly with your square footage.
- Condition of the home: If your home is in bad shape, or isn’t up to the most recent building codes, your replacement cost may be higher. That’s because things like an old roof can be a higher risk for insurers.
- Home style: Customized or complex homes typically come with a higher price tag, which can push up the cost to rebuild.
- Foundation: There are several types of foundations — such as slab, poured, crawlspace, and basement — and they’re all priced differently. A more complex or expensive foundation could increase your home’s replacement cost.
- Additions and fixtures: Additions to your home, such as a new pool or gazebo, can increase your home’s replacement cost. The same goes for fixtures such as new or custom countertops, cabinets, and lighting. The quality of these additions and fixtures can also affect the replacement cost.
Types of home replacement cost policies
There are different types of home replacement cost policies, which affect how your insurer reimburses you. Here’s a comparison so you can choose the one that’s best for your situation:
Standard replacement cost policy
Among the three replacement cost plans, a standard replacement cost policy is the most basic and least expensive, and it provides the lowest amount of coverage. In the event of a covered loss, your insurance carrier will pay to rebuild your home at today’s prices (up to your policy limits) without taking depreciation into account. You’ll need to cover any shortfall if the cost of repairs exceeds your policy limits.
Extended replacement cost policy
This type of policy increases your dwelling coverage by 10% to 50% of your home’s replacement cost. So, if inflation drives costs up, you’ll have a cushion to cover the additional costs. For example, if your dwelling coverage limit is $200,000 and you choose to extend it by 25%, then you’d have $250,000 to rebuild your home after a covered loss.
Guaranteed replacement cost policy
Guaranteed replacement cost is a rider you can add to your homeowners insurance policy. With guaranteed replacement cost, your insurance carrier will pay the full cost to rebuild your home after a covered loss, regardless of your policy’s limits or factors like rising labor and construction costs. This type of add-on provides the greatest financial protection against a total loss, but it’s the most expensive option. Additionally, availability can be limited depending on your state, region, and insurer.
With Credible, you can compare home insurance quotes so you can find a plan that fits your needs and your budget.
Actual cash value vs. replacement cost value
Actual cash value and replacement cost are options that determine how your home insurance provider reimburses you for a claim. The option you choose will affect your payout and the cost of your home insurance policy.
After a covered loss, actual cash value coverage pays to repair or replace your home according to what your property is worth today. Because it factors in depreciation (normal wear and tear), you’ll receive less than you would with any replacement cost policy.
Replacement cost value doesn’t account for depreciation and everyday use. Instead, it reimburses you based on how much it costs to repair or rebuild your property at today’s prices. This makes replacement cost coverage more expensive, but you’ll pay less out of pocket after a covered loss.
Disclaimer: All insurance-related services are offered through Young Alfred.