Calculating Home Insurance: Rebuild Cost

Calculating the cost of rebuilding a house is a complex process that involves several factors. The cost of rebuilding is influenced by the price of labour and materials, as well as the size of the house, the number of bedrooms and bathrooms, the type of roof and walls, and the local building codes. Online calculators and tools can provide a rough estimate of the rebuilding cost, but for a more accurate figure, it is recommended to hire a professional appraiser or work with a licensed insurance agent. Homeowners should ensure that their dwelling coverage amount is sufficient to cover the full cost of rebuilding, as being underinsured can result in financial difficulties in the event of a disaster.

Using a home insurance quote

One of the easiest ways to get an idea of your home's rebuild cost is to get a home insurance quote. When you get a home insurance quote, you will be asked for the rebuild cost of the property. With the help of third-party tools, the insurance company will then estimate this figure for you. This estimate is based on the year your home was built, the number of bedrooms and bathrooms, and the materials of your walls and roof. You can also be shown the rough rebuild costs of similar properties in your area.

You can change this figure if you have a more accurate rebuild cost. You can also find your home's rebuild value on your existing home insurance policy document or mortgage valuation report.

It is important to note that your home's rebuild cost and its market value are different. The market value of a home is influenced by factors such as access to transport links, amenities, hospitals, and schools, as well as its general desirability. The rebuild cost, on the other hand, focuses on the actual costs of construction, including labour, building materials, and any additional costs relevant to the rebuilding process.

The rebuild cost of your home is one of the most important factors when insurance companies work out your home insurance costs. This figure becomes your policy's 'sum insured'—the maximum amount your insurer is willing to pay towards a future claim. Therefore, it is crucial to be accurate with this figure. Too low an amount means you don't have enough cover to rebuild your home after a disaster.

If you are unsure how to calculate your home's replacement cost, it just takes a few easy steps. First, determine the building cost per square foot in your area, and then multiply that by your home's square footage. The National Association of Home Builders estimated the average build price as between $100 and $155 per square foot. The average cost of building a new 2,000-foot home is between $201,000 and $310,000, depending on your location.

You can also calculate the replacement cost of your home yourself using a calculator, but it requires some legwork, including figuring out the square footage costs in your area.

Hiring an appraiser

An independent appraiser is the most accurate method of determining a home's replacement cost value. An appraiser will assess your home's architectural structure and features based on current rebuild costs. However, it's important to note that the rebuild cost will differ from the market value appraisal.

When hiring an appraiser, it's best to opt for a local professional who is familiar with the ordinances and building costs in your area. They should also be qualified in replacement cost estimates. The appraiser will conduct an inspection of the interior and exterior of your home, taking note of everything that would go into a full rebuild.

• The appraiser will visit your home and thoroughly inspect it, taking photos and videos. They will examine various aspects of your home, including the foundation, structural framing, roof condition, plumbing, electrical fixtures, heating and cooling systems, and interior finishes.
• The appraiser will research local market rates for construction costs, materials, and labor to produce a report with your home's replacement value.
• The cost of an appraisal can vary depending on your location, but expect to spend a few hundred dollars at a minimum.

While hiring an appraiser may be more expensive than using an online calculator, it provides a more precise estimate of your home's rebuild cost. It's worth noting that insurance companies may also have their own cost estimators or rely on third-party tools to estimate rebuilding costs. However, for added peace of mind, hiring an independent appraiser can ensure you have the most accurate information when determining your insurance coverage.

Using a home replacement cost calculator

• Square Footage: The larger your home, the more it will cost to replace or rebuild. The higher the square footage, the higher the replacement cost. A simple way to calculate this is by multiplying your home's square footage by the local rebuild cost per square foot in your area.
• Home Features: This includes the type of flooring (like carpet, tile, or hardwood) and roofing materials. The replacement cost is affected by these features, particularly the quality of the materials used.
• Fixtures Quality: The quality of fixtures in your home, including countertops, cabinets, and lighting fixtures, also influences the replacement cost. Higher-quality fixtures typically lead to a higher replacement cost.
• House Style and Foundation Type: Complex home designs, styles, and the type of foundation your home is built on (such as a slab, crawl space, or basement) can also affect the replacement cost. For example, homes with basements, especially finished ones, might have different cost considerations.

It is important to note that while a home replacement cost calculator can provide a good estimate, it may not always be as accurate as an in-person appraisal by a licensed appraiser or contractor. They will likely conduct a thorough inspection of your home and provide a more precise estimate, but it will also be a more expensive option.

Getting a property inspection report

A home insurance inspection is when an insurance company assesses the replacement cost of a home or property. This is done to help determine the risks of future claims, calculate monthly premiums, and approve or deny coverage. The inspection can include a review of the home's exterior and interior, including the roof, foundation, and plumbing.

• Basement and Attic: Check for any signs of water damage, mould, mildew, insects, or rodents.
• Roof: Remove any debris, replace missing shingles, and examine the chimney for cracks or missing bricks.
• Gutters: Clean out waste and ensure all units are securely attached.
• Doors and Windows: Test locks and check for any broken seals.
• Walls and Ceilings: Inspect for any cracks, stains, or water damage.
• Safety: Test smoke and carbon monoxide detectors, check fire extinguishers, and ensure a radon test has been performed recently.
• Systems: Inspect and address any plumbing, electrical, and HVAC issues.

Keep in mind that a home insurance inspection is different from a full home inspection. A full inspection is typically done when buying a home and evaluates the property from top to bottom for safety and structural issues. On the other hand, a home insurance inspection is less extensive and is completed on a case-by-case basis.

Consulting a licensed insurance agent

• Expertise and Experience: Licensed insurance agents are knowledgeable about the different factors that go into calculating rebuilding costs. They understand the complexities involved and can provide valuable insights. Their experience in the industry means they have handled similar calculations for other clients and can apply that knowledge to your situation.
• Accurate Valuation: Insurance agents have access to sophisticated tools and calculators specifically designed for estimating rebuilding costs. They can input your home's characteristics, such as square footage, construction type, and local building codes, into these tools to generate a more precise valuation. This helps prevent overvaluing or undervaluing your home's rebuilding cost.
• Understanding Coverage Options: Licensed insurance agents can explain the different coverage options available to you, such as extended replacement cost coverage or guaranteed replacement cost coverage. They can advise you on which options are best suited for your needs and ensure that you have adequate protection in case of a disaster.
• Annual Review and Adjustment: It's important to review your coverage amounts regularly, as building costs and local market rates can fluctuate over time. Licensed insurance agents can assist you in conducting annual reviews of your policy to ensure that your coverage amounts remain accurate and up to date. They can guide you in making any necessary adjustments to reflect changes in local building costs or inflation rates.
• Personalised Guidance: Consulting a licensed insurance agent provides you with personalised guidance tailored to your specific circumstances. They can answer your questions, address your concerns, and provide clarity on any confusing aspects of rebuilding cost calculations. This personalised attention ensures that you feel confident and informed about your insurance decisions.

By consulting a licensed insurance agent, you can gain a better understanding of the rebuilding cost calculation process, receive expert advice, and ensure that your home is adequately protected in the event of a disaster.

Frequently asked questions