Home Replacement
Is your home insured for its proper value?
Is your home protected? Because your home may be the biggest investment you ever make, it’s important to understand your home insurance coverage options.

Here are some factors to consider when selecting a policy:

Market value is the amount you pay for a home, including the land, regardless of how much it would cost to rebuild the home. The selling price, or market value, is determined by factors such as age, size, physical condition and location of the home.

Replacement cost is the cost necessary to replace or restore the entire home equal to its condition before the loss. Replacement cost does not refer to the market value of the home, the home’s purchase price, the cost of the land, the assessed value or the outstanding amount of any mortgage loan.

What factors help determine the replacement cost of your home?

Extended replacement cost generally pays to have your home repaired or rebuilt to its condition before the loss even if the cost exceeds the policy limit up to a capped amount. The capped amount is an additional percentage, such as 25%,  50% or 100%, over the amount for which the home was insured.

Guaranteed replacement cost will pay to repair or rebuild your home to its original specifications regardless of the cost. There is no cap on the amount the insurance company will pay.

How you may be at risk

Choosing the right homeowners insurance policy may be just as important as choosing a home. When comparing policies, it’s important to distinguish levels of replacement cost.

You purchased your dream home for $2.5 million. The replacement cost is estimated at $2 million. Six months later, your home is destroyed by a wildfire. Whole neighborhoods are destroyed. Demand, price for labor and construction material costs soar, driving up the cost to rebuild. The actual cost to rebuild your home is $4 million. Depending on the insurance you chose and the coverage options available, you may receive the following for your claim minus your deductible.

  • Local construction costs
  • Square footage
  • Year built
  • Exterior walls/roof/trim
  • Style of home
  • Number of bedrooms/ bathrooms
  • Garage
  • Finishes
  • Customization
  • Improvements/renovations • Other unique features
  • Required Building code upgrades
    Comparisons of Home Coverage
    Home insurance coverage
    Claim payout
    Deficit after payout
    Market value of your home
    $2,500,000
    $1,500,000
    Basic replacement cost at 100% (homeowners policy insured amount)
    $2,000,000
    $2,000,000
    Extended replacement cost at 125%
    $2,500,000
    $1,500,000
    Extended replacement cost at 150%
    $3,000,000
    $1,000,000
    Guaranteed replacement cost (amount needed to rebuild)
    $4,000,000
Homes are often under-insured, leaving insufficient funds to rebuild to the same specifications. A major loss to your home is traumatic enough, but to not be able to recoup rebuilding costs could be devastating.

Talk to your Bolder Insurance Advisor about your replacement cost, and make sure he or she is aware of any significant changes to your home. Home renovations can have significant impact on your replacement cost valuation. Updating the wiring or plumbing may qualify you for an additional credit. While we rely on experience and data to determine the proper amount, circumstances can push the actual cost to rebuild higher than anticipated. This is another reason to choose guaranteed replacement cost.

Each claim is handled on the basis of its individual facts and circumstances and in accordance with policy language, including applicable exclusions, conditions and limitations. Insurance overview is for informational purposes only and does not replace or modify the definitions and information contained in individual insurance policies or declaration pages, which are controlling. Terms and availability vary by state and exclusions apply.

Content of this article is from Nationwide Private Client, a Bolder Insurance partner.

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