A series of question have come up regarding replacement cost for your home. First what is replacement cost, well it is almost like it sounds. The insurer is going to replace your home in the type and form that it was prior to an insured loss. Are there any caveats? Well yes, they do depreciate floors and roofs but the remainder of the home is rebuilt or repaired to bring it back to its original condition.
How do they arrive at replacement cost after a loss? This involves getting bids from a contractor to do the work. Most of the adjusters also have a program that allows them to estimate the job as well. The adjusters numbers are usually pretty close as long as there has not been a large problem in the area or even on the other coast. Building materials fluctuate all the time and a flood on the East coast or Fire on the West coast can cause building material prices to spike.
What do you need to know before the loss? Have you spoken to your agent about any changes to the house? Did you add on, upgrade the interior, add solar panels or solar water heating or even just changing out your windows to a more expensive brand? The first step to protecting your property is to start with a valid replacement cost number, and this begins with accurate square footage and year of construction. All agents have programs that calculate the replacement cost based on information you can provide them but it is only as good as the information provided. An accurate number helps to speed the process in event of a claim.
Once replacement cost has been established you are set. The only remaining question is what percentage am I insured for? 100% of the insurance value, or is it more. Many companies offer replacement cost coverage that exceeds the amount for which you are insured. Numbers from 125, 150 all the way to 200%. This covers you for inflation, increased building costs and more expensive building materials. The only requirement for these coverage's to kick in is that the year started out with a correct replacement cost number on the policy.
I hope this helped with understanding replacement cost.