How to determine your home’s replacement cost with a replacement cost estimator

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Knowing your home’s replacement cost value can help you figure out how much home insurance you need. Learn how to estimate your replacement cost. (Shutterstock)

Knowing the replacement cost of your home — how much it would cost to rebuild your home after it's destroyed by a covered event, like a fire — is important because it can help you figure out how much home insurance you need.

This article will cover some steps you can take to calculate your home's replacement cost with a replacement cost estimator or other method, as well as key factors that affect your home's replacement value and different policy options.

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What does replacement cost mean?
How to calculate your home’s replacement cost
What affects your home's replacement cost?
Replacement cost policy options

What does replacement cost mean?

Replacement cost is how much money you’d need to rebuild your home using the same construction materials, or to replace your personal belongings at current prices. It doesn’t factor in depreciation.

Insurers generally use your home’s replacement cost to determine your policy’s dwelling coverage limit, which is the maximum amount an insurance provider will pay to repair or rebuild your home. Ideally, you’ll have enough dwelling coverage to replace your home if it’s destroyed.

How to calculate your home’s replacement cost

You can estimate your home’s replacement cost in a few ways, including:

Hire an appraiser. One way to get an accurate replacement cost estimate is to hire a professional appraiser to come out and inspect your home.
Ask your insurer. An insurance provider can use tools to help you estimate your home's replacement value.
Use a replacement cost estimator. You can find several calculators online to help you estimate your home's replacement cost.
Estimate the cost yourself. You can also estimate the cost yourself by multiplying your home's total square footage by the average square-foot cost to rebuild a home in your neighborhood. For example, if you have a 3,000-square-foot home and the average cost to rebuild homes in your area is $80 per square foot, your home's estimated replacement cost would be $240,000 (3,000 x 80).

WHAT IS A HOMEOWNERS INSURANCE PREMIUM?

What affects your home's replacement cost?

Many factors can affect your home's replacement cost, such as:

Age of your home: The cost of replacing an older home can be higher than replacing a new one, depending on the types of materials used to construct the home.
Square footage: Larger homes tend to cost more to replace than smaller ones.
Fixtures: The quality of your home’s fixtures — light fixtures and countertops, for example — can affect its replacement cost.
Features and finishes: The quality of your home’s features and finishes — such as hardwood floors — can also affect its replacement value.
Style of home: The more difficult it is to re-create the style of your home, the more it’ll cost to replace.

Replacement cost policy options

When researching and comparing policies, you should be aware of these three different replacement cost options:

Standard replacement cost: Standard home insurance policies typically come with this coverage — it provides enough reimbursement to replace your home, up to your policy’s dwelling limit.
Extended replacement cost: This increases your dwelling coverage up to a certain limit — typically 10% to 50% of your home's replacement cost. It helps cover the cost of repairing and rebuilding your home, factoring in higher costs for building materials and labor. For example, say you have $300,000 in replacement cost coverage, and construction and labor costs in your area rise after a major storm, which causes your rebuilding cost to jump to $390,000. In that situation, extended replacement coverage of 30% would bridge the gap.
Guaranteed replacement cost: Some insurance carriers offer guaranteed replacement cost coverage. Like extended replacement cost coverage, it allows you to add extra coverage. But the key difference is that it doesn't have a set limit for additional coverage. Instead, it covers the price to replace or repair your home regardless of the cost. Keep in mind that this is also typically the most expensive replacement cost policy.

WHAT IS HIGH-VALUE HOME INSURANCE AND WHO NEEDS IT?

What's the difference between replacement cost and actual cash value?

Actual cash value is different from replacement cost value in that it factors in depreciation. For example, say you purchased a bedroom set for $5,000 three years ago, and today it’s worth $4,000.

If you had actual value coverage and filed a successful claim, you’d receive $4,000 — the bedroom set’s current value. By contrast, if you had replacement cost coverage, you’d get enough for a similar bedroom set at today’s prices, which could be higher or lower than the original amount you paid.

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What's the difference between replacement cost and market value?

While your home’s replacement value is how much it costs to rebuild your home, your home’s market value is how much you could sell it for on the market.

Your home’s market value can be higher or lower than its replacement value. That’s because market value can fluctuate due to many factors outside of the cost of building materials and labor, like the supply and demand for homes in your area and local economic conditions. Another key difference is that market value includes the cost of the land your home sits on, while replacement cost doesn’t cover this.