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 they are built. While the land holds value, it is unlikely to be at risk and is therefore not necessary to include when determining the value of your home for homeowners insurance purposes. The purchase price also includes intangible factors which influence the price of your home, such as its location, proximity to good schools, and commutability to work locations.
However, 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 often costs 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. Instead 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 to avoid undue stress.