How to Find Your Home’s Replacement Cost?

Jason Lee
Jason Lee

Navigating your homeowners insurance policy can get tricky with all of the different lingo and jargon out there. A few terms that often cause confusion are your home’s replacement cost and replacement cost estimates. By definition, replacement cost is what it would cost you to fully replace the affected item. This is in stark contrast to the “actual cost value,” which takes into account depreciation.

Replacement Cost vs. Actual Cash Value

Understanding the difference between the replacement cost and the actual cost value is important because it affects the amount of money you’ll receive if you need to use your insurance. Replacement cost means the insurer will pay you the replacement value at today’s costs. Actual value, on the other hand, only pays you what the product is worth after accounting for depreciation.

Let’s say you bought a TV for $500 three years ago. With replacement cost insurance, your insurer would give you the cash to fully cover the cost of rebuying that TV. With actual cost coverage, though, the insurer might say that your TV is only worth $250 today (because it’s three years old).  

How Replacement Cost Works

The simplest way to look at replacement cost insurance is that it covers the amount of money you’d need to return your property to the condition it was in before the incident. Generally, you are required to replace the item before you can collect the full settlement amount. This differs from a cash-out loss settlement, where you’ll receive the amount without the necessity to replace the item.

  • Personal property coverage — The items you have in your home can be covered under replacement cost coverage. You will want to go line by line with your insurance agent to make sure you have the coverage you need for the items you own.
  • Dwelling coverage — Many homeowner’s insurance policies come with replacement cost insurance that can help rebuild their home if it’s damaged or destroyed. If you have an older home, you may need to get a modified replacement cost coverage plan that sets you up for reimbursement with today’s more commonly used materials.

Factors that Affect Replacement Cost

The good news about getting a replacement cost estimate is that most policies don’t care if your item was brand new or was a decade old. Most policies pay you regardless to replace the item at today’s costs.

One of the most important factors that can affect replacement cost is your ability to document what items you had or the status of your home. If you purchase something new, you’ll need to make sure it’s covered by your policy before the incident. The same goes for upgrades to your home. Keeping your policy and your insurer up to date on the status of your home is a must.

Keep in mind your replacement cost coverage still falls under the total limits of the policy. If you’re worried that replacement costs might exceed your coverage, you may be interested in adding an extended replacement cost policy to your coverage.

How to Calculate the Replacement Cost of Your Home

One of the first steps in developing a replacement cost estimate is determining what you have in your home and the home’s current status. You can do this by calculating the total number on your own, using an online home replacement cost estimator, or getting the help of a professional appraiser. Let’s look at each option in more detail.

Do It Yourself

Many people choose to estimate the replacement cost of their home and belongings on their own. This can certainly save you some money without the need to bring in a professional to help. On the flip side, you’ll want to make sure you know what you’re doing because estimating too high can result in a higher premium than you need, and estimating too low could leave you vulnerable if you have to exercise your policy.


  • Know what you’re doing. Before you start inventorying your items and costs, make sure you understand how the process works. If you don’t have the technical knowledge needed to properly appraise your items, you could be going down a bad path.
  • Get organized. Inventorying the costs of all your belongings and your house can be confusing. Ensure you have a system in place to manage everything without getting confused and risking making a mistake.

Online Calculators

Many online resources exist that can help you with calculating your replacement cost estimate. Some of the most helpful tools you can use are home replacement cost calculators. Look for calculators that include calculations for general overhead and profit to contractors, building code requirements, and square footage.

  • Bluehammer — This company lets you sign up, claim your home, and then use its calculator to start assessing the value of your belongings.  
  • Craftsman — Instead of an online replacement cost estimator, this is software that you can purchase and use. The program costs a little less than $20 a month.
  • Dwelling Cost — This online tool is chock-full of data and pricing to help you get a very accurate picture of what your home is worth when calculating replacement costs.

Professional Appraiser

If you’re interested in getting the most accurate assessment of your calculations, hire a professional appraiser. While this will cost you some money upfront, it could save you in the long run by keeping you from overpaying on your premiums. Additionally, if using a professional saves you from underestimating the value of your dwelling and belongings, it could be worth thousands if you ever have an incident.

Some of the things a professional appraiser looks at include:

  • The materials your house is made out of.
  • How the foundation and the footings are constructed.
  • The types of pipes and plumbing you have throughout the house.
  • Upgrade you’ve made to the property.
  • The flooring used throughout the house.
  • The type of roof.

How to Get the Most Protection from Home Insurance Replacement Cost Coverage

  • Dedicate adequate resources for evaluating the replacement costs. The process of determining your replacement cost is tedious, but it’s extremely important. Making sure you estimate the cost appropriately protects you from paying overly pricey premiums and protects you if you need to use your coverage.
  • Update your coverage when needed. If you purchase new items or make upgrades and renovations to your home, it will affect the replacement cost estimate. Make sure you reach out to your insurance company to ensure you have adequate coverage for the changes or purchases you recently made.
  • Consider adding an endorsement to your policy. Guaranteed or extended replacement cost policies may offer you the additional coverage that you’re looking for. Both of these endorsements ensure you’re fully covered if you need to use your policy.
  • Pay attention to the details. When you finalize your policy with your insurance agent, make sure you completely understand every detail. If there’s something in your policy you don’t understand or aren’t comfortable with, ask for clarification.

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About the Authors

Jason Lee is a seasoned writer with a passion for writing about insurance, banking, and personal finance. As a Las Vegas local and area business owner for a decade, he knows the ins and outs of the city better than anyone.

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