How do I calculate the replacement cost for my home?

I'm trying to decide on the right amount of coverage for my home. How do I figure out my home's replacement cost?

Answer
This is a great question and one that can cause a lot of confusion. There are many online calculators that you can use to determine your replacement cost. To use one of these calculators, you will need information like square footage, roof type, and building materials. The odds are if you get a new quote from a carrier, the numbers will be similar.
Replacement cost is the amount of money needed to rebuild your home to the way it was before the loss, no better and no worse. What can be surprising to most people is how insurance companies calculate the replacement cost number. Replacement cost does not factor in the market value of the home or the land that it sits on, and trust us, you do not want it to! Market values can fluctuate wildly depending on the economy and the desirability of your neighborhood at any given time. This is something you have no control over, and it would make insurance rates unpredictable and very expensive.
Your homeowners policy also calculates the cost of any additional structures (shed, garage, inground pool, etc.) on your property and your personal property (clothes, furniture, toys, electronics, etc.). It is important to let your agent know if you have made any additions or improvements to the property, or if you have any personal items of a higher value.
Let’s say you just paid $300,000 for your new home, and the insurance carrier says it will insure the property for $350,000. This means that it will cost more to rebuild your home than what you paid for it. But if the carrier says it will insure the property for $250,000, it will cost less to rebuild your home than what you paid for it. Again, the market value, for the most part, is not related to the replacement cost. The price of materials and labor is based on the economy and availability, so your home’s replacement cost may change each year. While no one wants to pay more, this is also a good thing and meant to protect you and put everything to right if something goes wrong.
For more information about replacement cost, check out these articles:
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Shannon Martin
Answered on Mar 01, 2021
Shannon is an expert in personal lines liability insurance with 13 + years of insurance industry experience. She also served as a special insurance liaison to AARP members for 6 of those years. She is a graduate of UL Lafayette and currently resides in NY with her family. Shannon is also an amateur juggler, ukulele player, and is a time travel paradox theory enthusiast.
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