Replacement Cost and Home Price

Homeowners insurance protects the structure of your home and your personal possessions in it from damage or loss caused by theft, vandalism, fire, windstorms, and more. 

The replacement cost is the current cost to rebuild your home with materials of like kind and equal quality, as well as labor costs.

The purchase price of your home includes your home, additional building structures, and the land on which it is built. Your land is valuable, but it's usually not at serious risk of loss, so a standard home insurance policy doesn't account for it. The exception may be sinkhole insurance – this coverage does account for damage the land itself experiences after ground cover collapse. 

The purchase price also includes intangible factors that influence the price of your home: its location, proximity to good schools, and commutability to work locations. These can increase the price and value of your home when you sell it, but they don't impact how much it should cost to cover your home against damage. 

When Purchase Price and Replacement Cost May Not Be the Same 

The cost to rebuild your home may be more than the purchase price, depending on when you purchased the home, current property values, inflation, and other factors. That's because it can cost more to rebuild a home from scratch, especially after a local disaster that may drive up labor and material costs. 

It’s important to note that if you have an older home, some insurers may not offer a replacement cost policy as it may not be possible to rebuild your home using similar materials or features. They may offer a modified insurance policy stating that repairs or replacements may be done using standard modern construction materials. If you want to insure a property that may fall into this category, it’s worth discussing the replacement conditions with your provider.

Dealing with the aftermath of a catastrophic event is difficult enough without worrying about the cost of rebuilding your home. So be sure to insure your home and additional structures accurately. 


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