Understanding Your Home’s Replacement Cost

Determining home replacement cost can be confusing. Homeowners may mistakenly think home replacement cost is the same as a home’s market value. Instead, it’s the cost of rebuilding the home. Your replacement cost only covers the cost to rebuild your home. It does not factor in the mortgage, the home’s market value or the land your home is built on. It’s a shock to many homeowners because they see a replacement cost that’s much lower than their home’s market value.

To many home owner’s surprise, over half of homes in the U.S. are underinsured. The replacement cost of a home can vary depending on the policy you choose. But generally, you can calculate it by adding up the cost of replacing materials, energy costs, labor costs and fees. Note that insurers will not consider several factors when evaluating a home’s replacement cost, including the value of the land the home sits on and the cost of demolishing what’s left of the property.

Construction ManagementWhile knowing your home’s current market value can be helpful, you should disregard it when calculating the cost of rebuilding your home. If disaster strikes, the kind of coverage your insurance company provides will depend on your home’s replacement cost.

For tips to calculate your home’s replacement cost, click here, or talk to your agent at Professional Underwriters.