How do insurance companies settle on the cost to rebuild a house?

I live in an area with a lot of tornado activity, so I'm worried that some time down the line, my house may be destroyed and need to be rebuilt. In that scenario, how would an insurance company decide on the cost of rebuilding?

Answer
There are two different types of claim payouts for a home: replacement cost and actual cash value. For replacement cost, carriers calculate how much it will cost to replace your home based on the current price of materials and labor. This can also include contractors, debris removal, and storage, which is why the home’s insured value tends to be higher than the purchase price. An actual cash value payout is replacement cost minus depreciation (age or life expectancy of the dwelling or property).
For more information about this topic, check out this article: [Actual Cash Value vs. Replacement Cost: What’s the Difference?] (https://getjerry.com/advice/actual-cash-value-vs-replacement-cost-whats-the-difference-by-cheryl-knight).
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Shannon Martin
Answered on Apr 02, 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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