Replacement cost estimator for homeowners insurance

What is the replacement cost of a home?

In home insurance, the term replacement cost refers to the cost of rebuilding your home from the ground up with construction materials similar to those from the original build. It's not the same as the market value or selling price of your home. Replacement cost value factors in the costs of labor, building materials and other expenses relevant to the rebuilding process. Further, it does not consider the value of the land. 

Knowing your home's replacement cost value is an important part of making sure you have enough home insurance coverage. Think about it like this: if your home is completely destroyed in a covered loss, you'll need to make sure your home insurance policy can cover the full cost of rebuilding your home. If your policy limits are too low, you may need to pay for the rest of your home repairs on your own.

Replacement cost estimator: Calculating the replacement cost of your home

Calculating the replacement cost of your home may appear daunting, but there's more than one way to go about it. If you aren’t using a dedicated replacement cost estimator tool, a practical starting point could be obtaining an estimate from a local contractor or referring to your property inspection report. You could also hire an appraiser or consult a licensed insurance agent. 

Replacement cost is influenced by various characteristics of your home, some of which include:

• Age of the home: The year your home was built is a significant factor since there are different building standards based on the time period when your home was built. The age of your home can give insight into what type of exterior construction you have, such as solid brick or brick veneer, or even what type of electrical equipment your home has, such as knob and tube wiring or circuit breakers.
• Square footage: The size of your home will determine the materials needed, the labor involved and more. The larger your home, the more expensive it will likely be to replace. With rarer and costlier materials, square footage can profoundly impact replacement costs.
• Home features: This encompasses everything from the type of flooring (like carpet, tile or hardwood) to roofing materials. These features, particularly the quality of the materials used, affect the replacement cost.
• Fixtures quality: The replacement cost is also influenced by the quality of fixtures in your home, including items like countertops, cabinets and lighting fixtures. Higher-quality fixtures typically lead to a higher replacement cost.
• House style and foundation type: Complex home designs or styles and the type of foundation your home is built on (such as a slab, crawlspace or basement) can also affect the replacement cost. For example, homes with basements, particularly finished ones, might have different cost considerations.

Dwelling insurance at actual cash value or replacement cost value

Once you know your home's replacement cost value, you'll have a better sense of what your dwelling limit should be. From there, you have another choice to make in terms of coverage: whether to insure your home at its actual cash value (ACV) or replacement cost value (RCV). ACV coverage reflects the current rebuilding cost minus the depreciation of your home, meaning it factors in wear and tear. On the other hand, RCV coverage reflects the cost of rebuilding your home with current building materials, without factoring in depreciation. Because RCV policies usually pay out more, they're typically the more expensive of the two.

Types of replacement cost policies

Even after you calculate your home's replacement cost value, that number isn't written in stone. Changes in the cost of construction materials, labor and inflation can all affect what it costs to rebuild your home. To further offset your financial risk, a homeowners insurance company usually offers replacement cost policies and extended dwelling coverage. You will then need to decide which option is best for your budget and preferences.

• Standard replacement cost: The typical homeowners insurance policy will include standard replacement cost, which offers the most basic financial protection. It will pay to repair or rebuild your home without any depreciation factored in.
• Extended replacement cost: To help cover rising costs, you can choose the extended replacement cost option. It increases your home’s Coverage A value by a certain percentage above your dwelling limit. Most policies offer a 25 percent or 50 percent option. So, if your dwelling limit is $200,000, the 25 percent option would insure a rebuild cost of up to $250,000 instead.
• Guaranteed replacement cost: This option, often the priciest, ensures reimbursement for the full amount required to replace or completely rebuild your home, regardless of the current building expenses. If considering guaranteed replacement cost, it's advisable to verify its availability both in your specific state and with your insurance provider, as not all regions or companies offer this type of coverage.

Frequently asked questions