how to determine the replacement cost of your house

When it comes to carrying sufficient coverage on your homeowners insurance policy, it's key to know the difference between your house's actual cash value and its replacement cost. Here, we distinguish between the 2 and explain how to calculate your home's replacement value to ensure you're getting the most from your policy.

Let's say your home and personal property are destroyed after a covered incident like a windstorm or fire. The good news is, your homeowners insurance policy is designed to financially protect you so you don't have to pay for all the repairs and replacements out of your own pocket. But the question still remains — how much will your policy pay?

When you make a claim on your homeowners policy, your insurer calculates how much to pay you by determining how much it will cost to repair the property damage and replace destroyed personal belongings with new, similar ones.

So if your policy only covers the repairs on an actual cash value (ACV) basis, your insurance company will calculate the property's value at the time you purchased it and subtract the amount it's depreciated since.

On the other hand, if your policy covers the repairs on a replacement cost basis, depreciation isn't taken into account. The replacement cost is simply the amount necessary to replace damaged or stolen belongings with new ones — period.

To make sure you're getting the most out of your homeowners insurance, it's important to calculate your home's replacement cost (or replacement value) so that it can be factored in when determining certain coverage limits, like dwelling protection and personal property insurance, for example.

6 steps to calculating your home’s replacement cost

You may be wondering where to start when trying to determine your house's replacement value. Luckily, we've simplified the process into 6 easy steps.

1. Do the math

Start by researching what home builders in your area charge per square foot. When you multiply your home's square footage by the average rate, you can get a good idea of your house's replacement value.

The national average charged by building contractors in 2011 was $80. So, for example, if your house is 1,500 square feet, its replacement cost would be $120,000. It's important to keep in mind that your land isn't included in the replacement cost — just the dwelling itself.

Below are some additional steps you can take to calculate your home's replacement cost. Compare the amount calculated in step 1 with the sum of steps 2 through 5 to help gauge the accuracy of your estimates. It's important to note that when you get a quote for homeowners insurance, you can expect the insurer to walk you through a full replacement cost estimation. At the same time, it's good to have your own numbers on hand for comparison.

2. Estimate the value of your home's floors

You can estimate the value of your flooring by sourcing the flooring type (carpet, hardwood, tile, etc.) at local stores. Then research the average rate per square foot that nearby installers charge for your specific flooring material. So if your hardwood floors cost an average of $4 per square foot, and we use the example of the 1,500 square foot house, your floor's value would be $6,000.

3. Add up your cabinets, fixtures, and appliances

Take a look at your kitchen and bathroom. Compare cabinetry, fixtures, and appliances to new, same-quality ones at local stores. The national average cost of an appliance and cabinetry contractor isn't a reliable measure if you've lived in your home a long time, purchased an older house, or upgraded your cabinets and appliances to top-of-the-line quality.

4. Calculate the value of your home's exterior finish

From siding to windows, determine the value of your house's exterior finish. Costs can vary depending on the type of exterior siding you have (vinyl, stonework, etc.), and the quality and type of your windows. Basic-grade vinyl windows don't cost as much as arched, box-style, garden, or windows with inlays.

5. Get an estimate on your roof's replacement cost

You can get your roof's replacement value by contacting a local roofer for details. Depending on the complexity of your roof's truss system, replacement and installment costs tend to vary. You can also estimate the replacement cost by multiplying the surface area of your roof by the replacement value of the roofing material.

6. Keep good records

Not only is it a good idea to maintain a home inventory of your personal belongings, it's also wise to keep all receipts and records regarding repairs, upgrades, and general changes you've made to your house.

Make a video documenting your home's interior and exterior components — including appliances, flooring, utilities, ceiling materials, HVAC system, electrical panel, hot water tank, exterior siding, roof materials, and attached structures like your garage, deck, and breezeway.

Be sure to back up a copy of the video (on an external hard drive, for example) and update the video after any changes to your house. If your home were ever leveled by a fire or storm, this could help you recall the exact conditions of your property.

how replacement cost works at esurance

While many insurers offer replacement cost coverage as an additional option you can purchase for your home policy, Esurance includes it as part of your standard dwelling protection and personal property insurance.

We'll automatically pay the replacement cost of your damages if your loss is less than $2,500. If it's more than $2,500, we'll pay the ACV — and once you make repairs to your home and replace your belongings, we'll pay the difference between the ACV and replacement cost (as long as we receive the receipts within 180 days of your ACV payment). How's that for peace of mind?

Get a quote for reliable, affordable homeowners insurance from Esurance

We're confident you'll see all the perks of joining Esurance when you get your quick, free homeowners insurance quote online. From a wide range of coverages to a wealth of cash-saving discounts, we have your back with reliable policies designed to save you time, money, and hassle. You can also give us a ring at 1-866-439-5633, where our our agents are available to help at these times.

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