The Replacement Cost Estimator

Ensuring that your home insurance policy sufficiently covers your home is important. This can start with understanding both the definition dwelling coverage and how your policy calculates replacement cost. Dwelling coverage (or coverage A in your home policy) is what would rebuild or repair your home due to a covered loss, and for this reason, can be the most critical part of your home insurance policy. But when it comes to determining how much dwelling coverage you need, you’ll also need to understand replacement cost. Most insurance companies will require that you insure your dwelling for the replacement cost that is calculated by the replacement cost estimator.

What is Replacement Cost of Your Home?

The replacement cost of a home is the amount it would cost to rebuild your home using the same materials if there is damage or you need a complete rebuild. This cost is a combination of many factors, including construction costs, home features, the quality of materials used to build the home, and the square footage. It is the amount it would take to rebuild the home from top to bottom, the way it was before being damaged or destroyed.

Another important thing to remember is the replacement cost does not equal the market value of your home. The market value is determined by what your home could sell for in the current market conditions. The market value also incorporates numerous other factors into the price, such as the value of land, local amenities, and nearby schools.

Calculating the Replacement Cost of Your Home

Insurance companies will use a replacement cost estimator to calculate this amount. In general, the characteristics of your home, listed below, will have the greatest impact on your home’s replacement cost:

Age of the home. The year your home was built is a big influence since there are different building standards based on the time period when your home was built. The age of your home can give insight into what type of exterior construction you have, such as solid brick or brick veneer, or even what type of electrical equipment your home has, such as knob and tube wiring or circuit breakers.
Square footage. Naturally, the larger your home is, the more it will cost to replace or rebuild. The higher the square footage, the higher the replacement cost.
Features. Features of your home include everything from the flooring materials, such as carpet, tile, hardwood, up to the roof materials. Each of these characteristics affects the replacement cost, and the higher the quality of the materials used for the features, the higher the replacement cost.
Fixtures. Like the features, the quality of the home fixtures is also used. Fixtures include items such as your countertops, cabinets, and lighting. The higher the quality of fixtures means an increase in replacement cost.
House style. If your home design or home style is more complicated to rebuild or replace, it will likely increase the replacement cost.
Foundation type. Property insurers want to know whether your home is on a slab, crawlspace, or basement. If it’s on a basement, they will want to know if the basement is finished.

Once your dwelling coverage amount is determined, this becomes the Coverage A component of your homeowners insurance policy. Multiple other policy coverage options on your homeowner's policy will be affected by this amount. For example, your Coverage B, also known as other structures coverage, is usually 10% of your Coverage A amount and your Coverage C, also known as personal property coverage, is usually 50% – 75% of your Coverage A.

Dwelling Insurance at Actual Cash Value or Replacement Cost Value

The dwelling coverage of an insurance policy can be calculated at either the actual cash value (ACV) or replacement cost value (RCV). The difference between ACV and RCV is how each one takes depreciation into account.

ACV will replace items at their current market value, factoring in depreciation, while RCV will replace items with their brand-new versions without taking into account depreciation. Your home insurance policy will specify whether certain coverage is calculated at ACV or RCV, what adjustments are possible and the associated cost.

Selby Insurance can help review the characteristics of your home to determine your replacement cost estimate. Give Selby Insurance a call at (870) 336-2121 or stop by our office in Jonesboro at 2216 Wilkins Avenue. We work with over a dozen home insurance companies and can review the cost estimator at each company to find a home insurance policy that meets both your need and your budget.