Your home is an investment--perhaps the largest financial investment you will make in your lifetime. Just like any other investment, make sure that you are protected. This article will give you tips for how to determine a home's replacement cost for insurance purposes.
When determining the amount of homeowner's insurance coverage, insurance companies take several factors into consideration. But from an owner's point of view, it is important that your dream home gets insured for at least 100% of its estimated replacement cost.
Replacement cost refers to the amount needed to replace the damaged or destroyed structure, without deducting depreciation. This is different from the market value of your house. The market value of your house would mean the price paid for your house and it depends on such factors as market conditions, age of the house, and the neighborhood in which it is located. Replacement cost, on the other hand, is only affected by changes in the price of the materials and labor needed to rebuild your house in the same spot, same size and same quality of construction.
The replacement cost of your house can be computed using the replacement cost estimate you received when you had the house appraised. You just need to make an adjustment considering the inflation rate for the building materials and labor. Include any improvements you have made over the years, including renovations, additions/extensions, and installation of security systems, in your computation of the replacement cost of your house.
Some insurance companies send over a staffmember to determine the actual replacement cost of your home. If your insurance company does not, you can ask your insurance broker to give you a replacement-cost guide. If your home was custom-built, consult with the local builder association or builder with a good reputation for an estimate.
If you plan to estimate the replacement value of your house yourself, you can go online and use replacement calculators. Some are free and others are available for a nominal fee. HomeInsurance. com and Building-Cost. net are examples of sites with free cost calculators. HomeInsurance. com calculates the replacement value of the house using the zip code and the square footage. Building-Cost. net, on the other hand, takes a more detailed approach and requires the homeowner to answer a list of questions necessary to give a replacement cost calculation broken down by material costs, labor and equipment.
If you the results generated by these free replacement calculators are not sufficient to determine the homeowners insurance coverage of the house, then you can try using the fee-based replacement calculators. Examples are Xactware.com and InsuretoValue.com. The advantage of using Xactware is that it uses the same database used by insurance companies to determine the replacement cost of a house. InsuretoValue.com, on the other hand, offers two kinds of replacement cost valuation reports: one based on zip code and another based on the specific characteristics of the house.
No matter which option you take, keep in mind that your ultimate goal is to determine the best estimate for the replacement cost of your house. The coverage of your homeowner's insurance largely depends on the right computation. Getting the best estimate for the replacement cost of your home is a step towards protecting your investment.