How Do Insurance Companies Determine Home Replacement Cost? 

When purchasing a new home, it can be tempting to choose an insurance policy that only covers the basics. However, in the event of a total loss of your home, coverage for home replacement costs can be a lifesaver financially. Use the Douglas Residential Cost Guide to accurately estimate the replacement cost of your home and protect your most important asset.

What is Home Replacement Cost?

Home Replacement Cost refers to how much it would cost to rebuild your home in the event of total loss. Notably, replacement cost covers what it would cost today, using modern materials, to replace your home.

Policies based on Actual Cash Value (ACV) only pay you the depreciated value of your home and personal belongings, which is likely far less than what it would cost you to actually replace them. Home Replacement Cost guarantees you will receive a replacement, regardless of the fact that a new replacement is of higher value than your current home.

Factors That Affect Home Replacement Cost

Many factors can affect your home replacement cost, including:

  • Age of the home
  • Materials and finishings in the home
  • Size
  • Furniture and valuables
  • Building codes

How to Calculate Home Replacement Cost

With so many factors influencing your replacement cost, it can be easy to become overwhelmed. Thankfully, our Douglas Residential Cost Guide Online Tool is a quick and easy way to get an accurate estimate of your home replacement cost, ensuring that you’re getting a fair rate and that you’re purchasing the right amount of coverage for your home.

Difference Between Replacement and Market Value

A home’s market value refers to its value in the current real estate market. This is usually far higher than its replacement cost, because market value also takes into account many factors that have nothing to do with the property itself, including things like proximity to schools, grocery stores, etc.

Replacement cost only factors in what it costs to replace the structures on your property.

Home Replacement Cost Determines Other Coverages

The home insurance replacement cost figure acts as a baseline for other coverages in your policy as well. Contents coverage is usually based on a percentage of the replacement cost; general out-buildings or detached structures are generally based on a percentage of the home replacement cost, and so on. As such, it is extremely important that the replacement cost of your home is calculated accurately to ensure proper coverage.

Trust the Douglas Residential Cost Guides Accurate Replacement Cost Estimates

To ensure that your home is adequately insured, it is essential that your home replacement cost be as accurate as possible. The Douglas Residential Cost Guide can help you determine home replacement cost before ever stepping foot in an insurance office. Arming yourself with as much knowledge as possible about your home will help you protect it effectively. Douglas Residential Cost Guide is a finely-honed system used to carefully calculate home replacement cost for residential occupancy; it provides peace of mind for homeowners. Knowing how much coverage you need to protect your most valued asset before ever walking into an insurance office allows you to ensure your homeowner’s policy, and its coverages, are what’s best for your home. Your house works hard to protect you; in turn, Douglas Residential Cost Guide works hard to help you protect it.

Frequently Asked Questions

What is the advantage of insurance with replacement coverage?

With replacement coverage, you can rest easy knowing that in the event of total loss, you’ll receive the cost of replacing your home. With policies based on Actual Cash Value, you only receive the depreciated value of your home and possessions, leaving you to pay the difference out of pocket.

Do I have to insure my house for replacement cost?

No. However, by choosing not to insure your home for replacement cost, you risk being under-insured and incurring major financial hardship in the event of loss.

Does replacement cost impact insurance costs?

Yes, but the difference is usually so minimal that we always recommend it; it’s worth it for your peace of mind alone!