What is my home’s replacement cost? Posted in Home Maybe you’ve noticed the insurance value for your home is different than the purchase price or rebuilding costs. Or, maybe you’re at the beginning stages of researching home replacement cost while shopping for home insurance. No matter what stage of the process you’re in, knowing your home’s true replacement cost can help you find the right amount of home insurance and is critical if you must rebuild your home or replace your personal property after an unexpected event like a fire, hurricane or tornado. According to CoreLogic, a leading provider of property data and analytics, about 60% of U.S. homes are underinsured by an average of 20%. Knowing your home’s true replacement cost can help you make sure your home isn’t underinsured. Use this guide to help you find your home’s true replacement cost. What is replacement cost? Replacement cost coverage, if you purchase it, could be a part of your home insurance policy. The replacement cost refers to the dollar amount needed to rebuild your home with similar materials — at current prices — if everything was damaged or destroyed, and it typically covers the replacement of your personal possessions if they are damaged or destroyed, too. Replacement cost coverage is the alternative to actual cash value insurance, which covers the depreciated value of your home and possessions. Because actual cash value factors in depreciation, or the loss of value over time, you’d receive less money during a claim to rebuild or replace your possessions at today’s costs, leaving you on the hook financially to cover the difference in cost. If you’d like to pay lower insurance premiums, actual cash value insurance might be the better choice for you. It’s always a good idea to double check what you have with your independent insurance agent and talk through what would happen during a claim. Factors that affect your home’s replacement cost When it comes to calculating your home’s replacement cost, there’s more behind the final number than just the market value of your home. That’s why your home insurance value is often different from purchase price or the rebuilding cost. Some factors include: Construction costs House shape and style The age of your home Building codes Material costs Debris removal service Specialists Renovations Value of your possessions How to find your home’s replacement cost Depending on the amount of work you want to put into it or the price you’re willing to pay, there are a few ways to figure out the replacement cost of your home: Do-it-yourself calculations, using an online replacement cost calculator Hiring an appraiser Asking your independent insurance agent for help You might find your replacement cost is less than the market value of your home since market value includes the land you own (and you won’t have to rebuild or replace that). Your replacement cost can also be more than market value, especially if your home is older, has unique features or outdated utilities that will be more expensive to recreate or replace. You may want to consider comparing numbers from different sources to ensure accuracy, especially if you decide to make your own calculations first. 3 steps to calculate your home’s replacement cost If you’d like to try to calculate your home’s replacement cost on your own, consider these steps: Step 1:Contact local home builders and insurance agents to find the building cost per square foot in your area. Then, multiply that number by your home’s square footage. Step 2: Calculate these factors to find your final number: Cabinets, fixtures and appliances. Price out the cost of cabinets, fixtures and appliances, including heating, cooling and electrical systems. If your kitchen is outdated, replacing it with a new one will likely increase your costs. Flooring. Do you have hardwood or custom floors? Get a quote from local installers on flooring replacement costs. Roof replacement. Get an estimate from a local roofing company. A roof’s age and materials can greatly impact your overall replacement cost. Home exterior. Windows and features like stonework, woodwork and siding can all add up. Estimate these costs and include the cost of rebuilding any outside structures, such as a patio or deck. Special landscaping. Include the cost of a pool or architectural decorations that will need to be rebuilt. Personal possessions. Estimate the cost of your personal possessions should they need to be replaced, too. Creating a home inventory can help you complete this step. Step 3: Now that you’ve calculated your replacement cost, consider verifying your number with another method to confirm accuracy. This could take the form of consulting an appraiser, online calculator or using a replacement cost estimator offered by your insurance company. The thought of rebuilding your entire home or replacing all your possessions can be overwhelming, but putting in the effort to find your replacement cost now can literally pay off in the long run. By taking the time to find the true replacement cost of your home, you’ll ensure you’re financially protected and make recovery easier after an unexpected event. This article is for informational and suggestion purposes only. If the policy coverage descriptions in this article conflict with the language in the policy, the language in the policy applies. Talk with your independent agent if you have any questions regarding the details of your home insurance policy or if you need to update your insurance. References: - CoreLogic - TrustedChoice - Insurance.com - ValuePenguin - The Balance Share via: Facebook Twitter LinkedIn Email Related resources Actual cash value vs. replacement cost: Which one’s best for you? Posted in Home Choosing actual cash value or replacement cost in your home insurance policy will make a difference in the amount you can receive from a future homeowners’ insurance claim. What’s in your policy? See our infographic to learn the difference. Insurance tips for first-time home buyers Posted in Home It’s hard to match the excitement of purchasing a new home. But before you can walk through that door, you need to buy homeowners insurance. Follow these seven tips to find and buy the right home insurance policy for you.