Establishing the precise replacement cost of your home is crucial to purchasing adequate homeowners insurance. Essentially, it’s the first step as you shop for a new policy.
Still, calculating replacement cost is tricky. Numerous factors will influence the final amount. In this article, we’ll outline a safe and effective way to determine the replacement cost for your home. But first, let’s define a few terms.
What Is “Replacement Cost”?
You can think about “replacement cost” as the amount of money you’d need to rebuild the structure of your home completely if it were to be burned to the ground by a fire.
“Market value” is another important term to know. It is different than “replacement cost” even though it may seem quite similar at the outset. “Market value” refers to the value of your home were you to sell it right now. How much could you get for it in a fair sale?
Many homeowners confuse the term “replacement cost” with “market value.” Indeed, both are valuations of your home as you can see, but replacement cost is more essential when it comes to calculating the exact coverage A* amount for your insurance policy.
* Coverage A or “dwelling coverage” is the amount you insure your home’s actual structure for. It does not include personal property — for example, furniture, personal belongings, and other moveable items within your home. It does not include detached structures either — for example, gazebos, barns, and other outbuildings. These items and properties will be covered elsewhere in your insurance policy.
How to Calculate Replacement Cost
Again, replacement cost is the important home valuation to calculate so that you can choose an adequate amount of insurance for your home.
In order to make this calculation, many homeowners turn to the National Association of Home Builders who release “average build prices.” For example, in a given year the average build price might be $134 per square foot (only an example). From this number, you can multiply your home’s square footage and come up with a rough estimate.
Keep in mind that the above example provides only a rough estimate. You’ll need to factor in many working parts that make up your home, including your:
- Exterior features
Some homes have more or less expensive elements like these. Also remember that other criteria, such as your home’s specific location and/or age, can impact the replacement cost a great deal.
Turn to Your Insurance Company
Insurance companies are the best at coming up with accurate estimations of replacement cost. If you go to a homeowners insurance agency, an agent there will be able to plug your numbers into what’s called a Replacement Cost Estimator. This tool looks at every last piece of criteria associated with your home’s replacement value and comes up with the ideal replacement cost.
From here, you’ll be able to choose an ideal amount of coverage A for your home.
While it is possible to use online replacement cost estimators or appraisers to conduct these calculations, the goal of obtaining a replacement cost for your home is to ultimately purchase insurance anyway. In this way, it simply makes more sense to go straight to your insurance agency for help coming up with a replacement cost.
Reis Insurance Is Here to Help You Buy Homeowners Insurance
Reis Insurance can assist you in coming up with an ideal amount of coverage A for your homeowner’s insurance policy by calculating an accurate replacement cost. Our agents are here to serve you!
Call us today, or feel free to stop in at your convenience.