Home Replacement Cost Estimator for Insurance

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A replacement cost estimator is a tool your home insurance company uses to determine approximately how much it would cost to rebuild your home in a worst-case scenario where it gets destroyed completely. That estimated replacement cost tells you how much dwelling coverage you need on your insurance for your home to be totally covered. 

But you don’t have to rely on the insurance company’s estimate to tell you how much home insurance you need. There are other ways to estimate your home rebuild cost, including professional appraisals and DIY calculations. Read on to learn exactly what home replacement cost means and how you can figure yours out. 

What Is Replacement Cost in Home Insurance?

Replacement cost is basically the amount of money you would have to spend to replace your home – or just the damaged part of your home – using the same quality of materials the house was originally built with.

You can figure out how much dwelling insurance you need on your homeowners policy by estimating your home’s replacement cost. For example, if you calculate that your home would cost $300,000 to replace, you should have at least $300,000 worth of dwelling coverage. Any less, and you’ll be stuck paying the remainder out of pocket in the event your home is destroyed and needs a complete rebuild. 

How to Calculate the Cost to Rebuild a House

So, how do you figure out your home’s replacement cost? Usually, home insurance companies will estimate it for you when you get a quote for a policy. Insurers get that number from an algorithm called a replacement cost estimator, which takes into account things like the age of your home, the style of your home, and the cost of materials and labor in your area. 

You can calculate the approximate cost to rebuild your house on your own, too. There’s an easy way and a hard way to do it. 

The easy way: Use this simple formula. Your home’s square footage x the average cost to build a new home per square foot in your area = your replacement cost estimate 

For example, let’s say your home is 2,000 square feet, and you live in Fort Lauderdale, FL, where the average cost to build a home is about $150 per square foot. You would multiply 2,000 by 150 to get a replacement cost estimate of $300,000. Based on this estimate, you would need at least $300,000 of dwelling coverage on your home. 

This formula is an extremely rough-and-ready method that gives you a ballpark number. Your actual replacement cost depends on lots of specific factors unique to your home, such as age, shape, roofing material, flooring material, type of foundation, and any special features (like an attached garage or a patio). For a more accurate estimate specific to your home, you’ll have to use the hard way. 

The hard way: Get quotes from local contractors on the cost of building in your neighborhood, the cost of a new roof comparable to your existing roof, the cost of new flooring for a home the size and shape of yours, and other features that might affect the cost of rebuilding your house.

Use those specific quotes to form your estimate. Of course, this method would take a lot more of your time and effort, but it yields more accurate results, which ensures you take out the right amount of insurance on your home.

Another option is to hire an appraiser or contractor to do a rebuild cost assessment on your home. This industry professional would inspect your home’s features and use their expertise to come up with an estimate for you. Hiring an appraiser will usually give you the most accurate estimate, even more accurate than the number that comes from your insurance company. 

Just remember that a replacement cost estimate – no matter where it comes from – is still only an estimate. Labor and material costs are constantly changing, so an estimate today could be very different from your actual cost a week from now.

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Dwelling Coverage Calculator: How Much Should You Insure Your House For?

Now you know your home’s estimated replacement cost, but what does that actually mean for your insurance? To understand that, you need to understand the dwelling coverage portion of your home insurance. Dwelling coverage, also known as coverage A, is the part of your insurance that pays to repair or replace the structure of your home: things like the roof, the floor, and the walls. 

Ideally, your home insurance policy should include enough dwelling coverage that if (knock on wood) your home burned to the ground tomorrow, your insurance would pay the total cost to rebuild it (minus your deductible). Any costs your insurance doesn’t cover would have to come out of your own pocket. So, if the estimated cost to rebuild your house is $300,000, your insurance should include $300,000 of dwelling coverage. 

Even if you can’t afford coverage for the full replacement cost value of your home, you need to insure it for at least 80% of its value. Otherwise, your insurance will start paying less on claims

For example:

Take our example home with a replacement cost value of $300,000. Let’s say the homeowner has a dwelling coverage limit of at least 80% of the home’s value, which would be $240,000. Now, let’s say a tornado comes through and rips the roof off that house. If the roof costs $8,000 to replace, this insurance policy would pay the full $8,000 (after the homeowner pays the deductible).

Imagine that homeowner’s neighbor has the exact same house, also worth $300,000, and the tornado blows their roof off, too – but this homeowner’s dwelling coverage limit is $210,000. Since that’s only 70% the replacement cost value of the home, their insurance company would only pay 70% of the cost to replace the roof. For an $8,000 project, that leaves the homeowner paying $2,400 out-of-pocket. 

To keep yourself out of that situation, make sure your dwelling coverage is at least 80% the replacement cost value of your home. 

Replacement Cost Value vs. Actual Cash Value

The last thing you should know about replacement cost home insurance is that it’s not your only option. Instead of using the replacement cost value, you could choose to insure your home for its actual cash value

With actual cash value home insurance, your insurance doesn’t pay the full cost to replace your home (or part of your home) with the same materials. Actual cash value coverage factors in depreciation, or the amount your home has dropped in value since it was first built. 

For reference of how that’s different from replacement cost value, take a look at the formula for calculating actual cash value:

  • Step 1: Expected lifespan of the item being replaced – current age of the item = A
  • Step 2: A x current replacement cost of the item = B
  • Step 3: B ÷ expected lifespan of the item = the item’s actual cash value 

Using that formula, let’s see how much an actual cash value insurance policy would pay for our $8,000 roof replacement from the earlier example, given the roof had an expected lifespan of 20 years but was destroyed 10 years after being built. 

  • Step 1: 20 years – 10 years = 10 
  • Step 2: 10 x $8,000 = $80,000
  • Step 3: $80,000 ÷ 20 years = $4,000 

So, in this case, an actual cash value policy would only pay $4,000 to replace the roof, and the homeowner would have to shell out the other $4,000. 

Because replacement cost value offers more coverage, it’s the safer option, if you can afford it. But as a general rule, the more coverage a policy includes, the more you’ll have to pay for it in your premiums, so replacement cost value insurance is typically more expensive. 

Along with standard replacement cost value, there are two other types of replacement cost value insurance that offer even more coverage – and are, therefore, more expensive:

  • Extended replacement cost coverage extends your dwelling coverage limit by a certain percentage. So, if your dwelling coverage limit is $250,000 and you opt for a 50% extended replacement cost policy, you would actually be insured up to $375,000 ($250,000 + 50%).
  • Guaranteed replacement cost coverage guarantees that your insurance will pay the full price of replacing your home or parts of your home, no matter how high (usually with certain caveats). This type of policy is uncommon, and it isn’t available everywhere.

Where to Get a Homeowners Insurance Policy

Choosing the right insurance coverage for your home can be confusing and overwhelming, but it doesn’t have to be. With Clovered, a totally online independent insurance agency, you can find the best home insurance policies for your budget from a variety of providers. All it takes is a few minutes filling out our online quote form.

It's Time to Switch Your Homeowners Insurance

We partner with the nation's top homeowners insurance companies so you can get a custom policy at an affordable price.

The editorial content on Clovered’s website is meant to be informational material and should not be considered legal advice.

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