When you purchased your home, you probably obtained home insurance during the closing process. But consider how much has changed since then. If you’ve made major renovations or repairs, or if building costs and inflation have gone up, your home may be underinsured. This means that if there is damage, you may find yourself financially responsible for a large portion of the rebuilding cost, not including the deductible. Knowing your home’s accurate replacement cost can help you avoid this problem and make sure your home is insured for what it is truly worth.
What is Replacement Cost?
Replacement cost refers to how much it would cost to rebuild or repair your entire home. This is based on the size and structure of the home and is not related to the outstanding amount of mortgage loans. Replacement cost coverage protects your home and ensures it can be rebuilt in the event of a loss, such as:
>> Weather — storms, fire, wind, plumbing system freezes, and hail
>> Non-weather — theft, damage from vehicles or aircraft, vandalism, and riots
>> Accidental direct physical loss — tearing or bulging of heating and cooling systems, artificially generated electrical current, and water from plumbing
Insure Your Home at 100% of its Estimated Replacement Cost
Although you can’t predict your home’s exact replacement cost in the future, keeping your home insured for 100% of its current replacement cost is the best way to protect and reconstruct your home if needed. An annual review of your homeowner’s insurance is pertinent to ensure that any updates you may have done are captured in the reconstruction cost.