One major part of any homeowners insurance policy is the replacement cost of the home. This is also known as your dwelling coverage limit. This coverage is selected when you set up your homeowners insurance policy and is used when you need to repair or replace the home in the event of damage or destruction.
You might think that putting down the home’s market value should cover the replacement cost of the home, but it’s actually more complicated than that.
Let’s take a look at the factors that go into determining this value.
What does replacement cost coverage mean?
Replacement cost of a home is the entire amount that it costs to rebuild the property. This is different than the market value of the home, which includes many other factors. A home insurance policy refers to the replacement cost via dwelling coverage and personal property coverage.
Dwelling coverage applies to the home and all attached structures like garages and fences. Personal property refers to all the things you own. A homeowners insurance policy will likely cover the dwelling at replacement cost value, which will fund the full cost of repairing or rebuilding.
But this isn’t always the case. The cost of rebuilding older homes or those with specific architectural features may be too costly to do with modern materials. In this case, the insurance company may not cover the entire replacement cost of the home.
It’s worth noting that there are many factors that go into determining replacement cost. These include the home’s square footage, the number of rooms, the age of the home, the interior features, any renovations and more.
How to estimate replacement cost of home
If you want to get an estimate of replacement cost, there are a few different ways to do it:
- Find out the insurance company’s estimate: When you receive a quote from a homeowners insurance company, an initial dwelling coverage recommendation is offered based on how much the insurer believes replacement cost will be. Insurance companies will utilize their own cost estimate tools to determine this coverage. The value is figured out by using details that you provide on the insurance application and through property data that third parties provide.
- Bring in a licensed appraiser: A local contractor or appraiser can conduct a full inspection of the home and take note of all aspects of a potential rebuild. This is a very accurate way to estimate the replacement cost of a home.
- Use online replacement cost calculators: There are plenty of websites that offer replacement cost estimates. Just plug in some figures, and see what it comes up with. This is the easiest but least reliable way to determine the replacement cost of your home.
When you need protection from life’s unexpected twists and turns, Harvey Sarles Insurance Agency is here. We offer policies on life, home and auto, along with umbrella, liability and business insurance. Come have a chat with our experienced insurance brokers and find out how we can protect the most important parts of your life.