Cost & Coverage
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Make sure your home and personal belongings are insured at their replacement cost so that you can be fully reimbursed for damaged or stolen property. Find your home’s replacement value with our home insurance calculator.
Replacement cost refers to the amount it would cost to rebuild your home or replace damaged or stolen property
Property replacement cost is factored in when you file a dwelling, other structures, or personal property claim
To calculate your home’s replacement cost, you’ll need details like its square footage, roof type, and local construction costs
Consider extended or guaranteed replacement cost for additional replacement value coverage
If you’ve ever shopped around for homeowners insurance or looked at the declarations page of your existing policy, you may have noticed the term replacement cost at one point or another. In homeowners insurance, replacement cost, or replacement cost value refers to the amount it would cost to rebuild your home as it was before it was destroyed, or to replace stolen personal belongings with brand new items.
Most homeowners insurance policies will insure your house and personal property at its replacement cost. In other words, when your insurance company calculates your claim payout, they will determine the full replacement amount of the damaged or stolen property and you won’t have to pay to replace anything out of pocket.
Your insurer may also offer a lower cost actual cash value (ACV) policy. Actual cash value is a loss settlement provision that factors depreciation into your payout, so if your five-year-old laptop is stolen, you’ll be reimbursed for the value of the laptop after five years of depreciation instead of a brand new one. Actual cash value payouts typically result in a lower reimbursement than replacement cost and they’re generally not worth the reduced insurance premium.
Having a replacement cost policy is one thing, but how do you go about about calculating the replacement amount of your home and personal belongings? Start by using our replacement cost calculator.
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Replacement cost coverage involves two components of your homeowners insurance policy: dwelling coverage, which protects your home itself; and personal property coverage, which covers your personal belongings.
When you file a claim for, say, roof damage, your insurance company will determine your reimbursement amount by calculating how much it would cost to replace the damaged roof with one of similar type and quality. That means if your damaged roof is made of solar shingles, your insurer should reimburse for the value of new ones — not for asphalt or a different kind of roofing material.
Personal property coverage functions similarly to dwelling coverage when insured with replacement coverage. If a $300 video game console is stolen from your home and you file a burglary claim, your reimbursement should be the $300 for a new system. Something to bear in mind with personal property claims and replacement cost reimbursements is that initially, your insurer will only pay you an item’s actual cash value. After you’ve gone about replacing the property, the insurance company will pay you the difference between the item’s actual cash value and its replacement cost.
It’s crucial that your dwelling coverage reflects your home’s rebuild cost as accurately as possible. Most HO-3 policies state that your home will only be protected at its replacement value so long as your home is covered for at least 80% of its insured value. If it isn’t, your insurer may only pay you for the structure’s actual cash value on a claim.
When you shop for homeowners insurance, the initial dwelling coverage recommendation you see in your quote is usually a rough estimate from the insurance company based on details you provided in your application and information obtained from third party companies. The insurer could also base your coverage limit based on the declarations page of your current policy.
But the insurer-suggested coverage limit — even after underwriting — may not be the most accurate; it’s even possible that the recommended limit won’t put you over the 80% threshold needed to receive replacement cost reimbursements. For that reason, it may be worth talking to local construction companies, contractors, or appraisers to see if your home’s currently insured value is correct.
The biggest determination of your home’s rebuild cost is its square footage and the local construction costs. For a rough estimate of your dwelling coverage amount, you can simply multiply the square footage of the home by the local rebuild cost per square foot. To find out the local rebuilt costs, contact an aforementioned professional in your area to help you out.
There are also several replacement cost calculators available online which can offer more comprehensive rebuild estimates of your home. These tools take other factors into consideration, such as:
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There are some nuances and rules nested within replacement cost policies that may affect how much you get back for personal property claims. Insurers stipulate that certain high-value or rare and vintage items, like an old guitar or piece of jewelry, can’t be covered for their full replacement value without additional coverage like a scheduled personal property endorsement. Without this special coverage, if your burglarized vintage Gibson guitar is valued at $5,000, and a brand new model is only $1,000, your insurer may only cut you a check to cover the costs of the new model.
You also need to factor in your deductible when filing a personal property claim. If your $1,200 TV was stolen, you’d be entitled to the full $1,200 under a replacement value policy. However, the replacement cost for single-item claims includes your deductible. Which means if your deductible is $500, your insurer will only cut you a check for the remaining $700.
While that specific scenario isn’t ideal, it still beats your reimbursement under an actual cash value policy. Say your TV is three years old and is estimated to have depreciated in value to $700. Under an ACV policy, you’d only receive $200 from your insurer after the deductible. That means you’d potentially have to pay an additional $500 out of pocket to reach the $1,200 for a new TV.
Your standard replacement cost dwelling coverage may not be sufficient if you live in a region prone to disasters where repair costs can fluctuate. Rebuild costs can skyrocket for a variety of reasons. If your neighborhood was recently hit with a tornado and every home needed to be rebuilt, the laws of supply and demand may cause the cost of materials and labor to increase significantly, sometimes beyond your coverage limits.
Your municipality may also have instituted a recent building ordinance which requires you to rebuild your home elsewhere. Rebuilding in the new spot may also be significantly more pricey and exceed your dwelling limit.
As a security blanket, some carriers offer settlement provisions that extend your limits.
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