How to Estimate Replacement Cost for Homeowners Insurance

If a covered disaster destroys your home, its replacement cost is the amount you’d need to rebuild the house using materials of similar quality. Replacement cost is an important number to know because it affects just how much insurance — specifically, dwelling coverage — you should buy to fully protect your home.

A home’s rebuilding costs can change with inflation, rising home values, changes in the cost of construction materials and labor, and other factors. It’s a good idea to recalculate your home’s replacement cost from time to time to ensure you have adequate homeowners insurance, and a replacement cost estimator can help.

Let’s look at replacement cost, how it works, and what to know about estimating your home’s replacement costs.

What is replacement cost in homeowners insurance?

When a covered event damages or destroys your home, your insurer can value your loss at your home’s actual cash value (ACV) or for replacement cost, depending on your insurance policy. The type of value will affect how much your insurer pays out for your claim.

Replacement cost looks at the expense of repairing or rebuilding your home. It doesn’t factor in depreciation. So your insurance company will pay the actual cost to fix up your home — but only up to your policy’s dwelling coverage limits.1

This is why accurately estimating your replacement cost is so important. Your dwelling coverage limits should be as close as possible to what it would actually cost to rebuild your home, including labor and materials expenses.

What is a replacement cost estimator?

It’s fairly standard practice in the home insurance industry to use a replacement cost estimator to determine the replacement cost of a home.

These estimators can help predict how much you need to spend to completely rebuild your home using the same quality of materials originally used, regardless of market conditions. Replacement cost coverage is the best way to ensure you can afford to restore your home to its original glory in the event of damage or you if experience a total loss.

How to estimate your home’s replacement cost

A simple way to estimate how much it’d cost to rebuild your home is to multiply its square footage by your area’s average per-square-foot construction costs. For example, if your home is 1,700 square feet, and the local cost in your area is $180, it’ll cost approximately $306,000 to rebuild your house. Your dwelling coverage should be for at least that amount.

Local builders and real estate agents can be good resources for finding out your area’s construction costs.

While you can get a replacement cost estimate from your homeowners insurance company or an insurance agent, you can also hire a professional appraiser if you’re looking for a second opinion.

To get a quick idea of your home’s replacement cost, you can plug information about your home into a home replacement cost calculator.

Factors that affect home replacement costs

When determining your home’s replacement cost value, a handful of different factors are taken into account, including your home’s:

• Square footage: The bigger your home is, the more it’d cost to repair or replace it, as each additional square foot requires more material and labor.

• Age: Building standards have changed greatly over the years. For example, older homes may have more expensive exteriors made of materials like solid brick, whereas newer homes may be made with less expensive brick veneer.

• Fixtures: The style of materials used in your home also comes with varying costs. If you have marble countertops, your kitchen will be more expensive to rebuild than a home with tile counters.

• Style: Simpler home styles cost less to rebuild than more ornate ones.

• Features: Floors, the roof, and other areas of your home feature varying materials that come at different price points.

• Foundation: Is your home built upon a slab or crawl space? Do you have a basement? Is the basement finished? All kinds of foundation details need to be taken into account.

• Quality of construction materials: Homes with luxury construction materials like exotic hardwoods or marble cost more to rebuild with similar materials.

• Local building materials cost: Materials costs can fluctuate from region to region depending on factors like availability and the local market.

• Local labor costs: The cost of skilled labor varies by location depending on circumstances like cost of living in an area and the availability of workers.

Types of replacement cost

When you buy a homeowners insurance policy, you can choose from multiple types of replacement cost. The option you select will affect how much you might receive from your insurance company if you have to file a claim.2

Here are replacement cost options to consider.

Replacement cost estimator FAQs