What Does Homeowners “Replacement Cost” Mean?

Here’s a brief explanation of replacement cost:

  • Replacement cost is the total cost to rebuild your house from scratch reflecting today’s prices, construction methods and building codes.
  • This figure can be higher than your home’s actual value.
  • The replacement cost of your home can increase following a catastrophic event results in greater demand for labor and materials.

Q:Question I’m trying to decide whether to get “replacement cost” coverage on the house I’m about to buy.  What exactly is replacement cost and how is it different from appraised value?

Farmers Insurance® agent John Drakulich of Sparks, Nevada offers the following description of replacement cost.

A:Answer Replacement cost is the total cost to rebuild your home just as it stands today. It takes into account current construction techniques, prices for labor and materials, and the location of your home.

Replacement cost is not the same as your home’s market value. The cost to rebuild your home from scratch may be higher than what you could sell it for today. When determining replacement cost, your goal is to try and make sure you have sufficient coverage for all potential expenses associated with rebuilding.

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