Home Replacement Cost Value Calculator
If you are in the market for a new home, one of the first things you should consider (after you find the perfect house) is insuring your new house. One of the most important things you will need to know is the replacement cost of your home to ensure that you cover your home for the proper amount.
The replacement cost is how much it would cost to rebuild your home with similar materials if it was destroyed or damaged by a covered peril. This number ties together with the amount of insurance coverage you end up selecting to protect your home and how much your insurer will pay out if you file a claim on your policy.
Dwelling Coverage
When insuring your home you have to choose a “dwelling coverage” amount, which matches up with the replacement cost of your house. Having the proper replacement cost is key to making sure you are fully covered. If you are not carrying enough insurance to fully cover the cost to rebuild your home you may be on the hook for some major repairs or rebuilding bills.
Being underinsured is much more common than you think. Data from Nationwide shows that some homes are underinsured by as much as 60 percent or more and CoreLogic discovered that roughly three in every five homes in America are insured for 20 percent less than their full value.
Being underinsured can be a huge problem and can drain all of your assets if you have to cover a major portion of the rebuild or repair costs if your home is severely damaged or destroyed.
In addition to leaving you high and dry on rebuilding costs, being underinsured may affect your ability to replace your possessions. The coverage for your possessions is a percentage of your homes coverage limits so if you are underinsured on your homes structure, you may also be underinsured on your possessions.
Determining the cost to rebuild your home can be difficult so we thought it would be a good idea to explain this important insurance concept in detail.
Replacement Cost Vs. Market Value
You should always insure your home for the replacement value, the cost to rebuild it to its former glory, not its market value or what you could sell it for if you put it on the market.
In most cases, the market value of your home does not accurately reflect the actual cost to rebuild it. In some cases, a hot real estate market for example, the market value can be dramatically higher than the replacement value meaning you could end up over insured.
In other cases, the market value could be lower than the cost to rebuild, this is especially true for older homes that have unique hand carved features or other labor intensive components. This can leave you seriously underinsured.
Properly calculating the replacement cost of your home ensures you are carrying the right amount of coverage.
Replacement Cost is Better Than Actual Cash Value
There are two different types of coverage when it comes to homeowners insurance and one is definitely better than the other. Here is a quick overview of the benefits of each:
Actual Cash Value: This policy type will take deprecation into consideration when calculating the payout on a claim, this can have a major impact on the payout amount, especially if it is a large claim.
Insurers have proprietary formulas to help calculate depreciation but in most cases it will drastically lower your payout. Insurers will usually assign an expected life span to items and then subtract a certain percentage every year.
As an example, if the roof of your home is 17 years old and the insurance company assigned it a 25-year life span, you will be covering a major portion of the cost to replace your roof if it is destroyed or damaged.
Actual cash value also extends to your personal contents and it can make it difficult to replace your possessions without spending a ton of money. As an example, If you purchased a television 7 years ago for $1,200 and it depreciates $100 a year, your payout check will be for $500, hardly enough to replace it. When you multiply this shortfall by all of your possessions, it can quickly add up to serious money.
While actual cash value policies are cheaper, the savings is usually not worth the added risk.
Replacement Value
Replacement value on the other hand will cover the cost of rebuilding your home and replacing your possessions with brand new items of the same quality, regardless of depreciation.
This means that your home will be rebuilt even if rebuilding costs have increased over the years. Your possessions will also be replaced with brand new items of a similar quality despite any deprecation that has occurred.
Most standard homeowners policies cover the structure of your home at replacement value (most insurers have made replacement value standard) but drop down to actual cash value for your possessions. You can upgrade the majority of policies to replacement value for your possessions and it is well worth the slight price increase.
While saving some cash is always a good thing, opting for an actual cash value policy can be an expensive mistake. In a major claim situation your share of the bill to repair your home and replace your possession can easily end up costing tens of thousands of dollars.
Pricing can vary by a variety of factors but in most cases you will pay about 10 percent more for a replacement value policy, which in our opinion is well worth the cost.
Helpful Article: The Best Reasons Why You Need Replacement Value
A Few Factors That Can Impact Replacement Value
In most cases, the cost to rebuild your home will be less than its actual market value. The market value of your home includes the land it sits on and in many cases, this is a major component of its value. However, it is possible that the cost to rebuild could exceed the market value, which is why it is important to get the value right for insurance purposes.
Here are just a few factors that can impact the rebuilding cost of your home:
Building Codes: If building codes have changed over the years you may have to rebuild according to the new codes, which can push up the cost of rebuilding your home if it is destroyed. Many actual cash value policies do not cover these additional expenses unless you have a rider on the policy.
Age: The age of your home can have a major impact on your rebuilding costs and in many cases, the rebuild cost can be higher than the market value on older homes. Outdated plumbing and electrical have to be updated and features such as custom molding, carvings and plasterwork can be expensive to replicate.
Location: If your home is located in a remote or difficult to access area this can dramatically increase the repair/rebuild costs, often pushing the rebuild costs above the market value.
A Few Ways to Calculate Your Replacement Costs
When shopping for insurance, your agent should help calculate the replacement value of your home. However, if you don’t feel it is accurate, you want to double check or just like math it is very possible to come up with your own replacement value number.
DIY: This method requires a bit of legwork but the price is right, it’s free. Check with your local homebuilders association or insurance agents to determine your local building costs per square foot and then simply multiply by your homes square footage.
The National Association of Home Builders put the average build cost in 2015 as $103 per square foot. This number can vary dramatically though by location so make sure you check your local rates to get an accurate number.
Be sure to take these things into consideration when calculating your costs:
- Hardwood Floors: Hardwood or custom flooring will push up your replacement costs. If you have custom flooring get a quote from a local installer on replacement costs and factor into your calculations.
- Roof: If your roof is old, damaged or if you have pricey materials on your roof such as tile, putting on a new roof can up your costs. Get an estimate for a new roof and add those costs to your estimate.
- High End Features: Standard building costs don’t take into account any high-end features you may have in your home. Stonework, expensive windows and even decks and patios can impact your rebuild costs. Get estimates for anything out of the ordinary.
- Personal Possessions: Your insurance also covers your personal possessions and these can be a major factor in a claim. Always keep an inventory of your personal possessions, this will help make sure you are paid quickly and fairly if you have to file a claim. There are a number of apps that can help make this tedious process a bit easier.
- Use Our Online Replacement Calculator: Our online calculator can help you calculate the replacement cost of your home and best of all, it is entirely free.
- Hire a Professional: While the most expensive of the various options, this is also the most accurate method. An independent appraiser will give your home a rigorous inspection, check local building costs and calculate the cost to rebuild it.
Professional appraisers will examine everything from the foundation to the interior walls, electrical, plumbing, roof and any custom features that can run up the cost to rebuild. Local appraisers can be found online or ask your insurance agent for recommendations.
The cost of an appraiser will vary by location but in most cases it will cost a few hundred dollars.
A Few Final Tips
Here are a few final tips for making sure your home and possessions are fully protected:
- Home Inventory: Keeping an up to date inventory offsite or in the cloud will help make sure you get your claim handled fairly and quickly. Record price paid, serial numbers, date purchased and add a photo.
- Video Your Home: This is another great way to make sure your claim is handled fairly. Video the interior of your home as well as the exterior so you have a record of exactly what your home looked like before it was damaged. Include all of the mechanicals, roof, flooring and cabinets.
- High Value Property: A standard homeowners policy will usually put a cap on high value property such as jewelry, artwork, collectibles and even firearms. If you have a large amount of high value possessions you may need a rider to fully protect it. Most standard policies cap high value property at around $1,500.