When researching homeowners insurance, you’ll see and hear a lot about the replacement cost value of your home. But what is it, and how do you find out what yours is? 
The replacement cost value of a home is the cost it would take to rebuild in the event of disaster. This number is used to determine how much coverage you need. Homes with a higher replacement value will need more home insurance coverage to pay for possible damage or loss.
Calculating the replacement value of your home can be time-consuming. First, it’s important to keep accurate records of your important purchases. Fixtures, amenities and upgrades all matter when it comes to your home insurance. Add up the expensive items in your home. Some information about the home itself will already be available to you, such as the square footage. Overall, you need to add up the value of your home’s:
- Floors
- Size (square footage)
- Cabinets
- Fixtures
- Appliances
- Exterior finish
- Roof
You can get an estimate on your home’s value from a contractor, though some items you want to add to your insurance policy will have to be done yourself. Keep depreciation in mind, though. Older fixtures won’t typically be worth the same as new fixtures. Any updates you’ve made to the home should be accounted for. To estimate the value of your home’s floors, consider the type of floor and multiply this by the square footage of your home. For example, if the average cost of tile flooring is $7 per square foot and your home is 2,600 square feet, the value of your floors would be $18,200.
What Is The Difference Between Replacement Cost Value And Actual Cash Value?
The two ways you may receive compensation for damage or loss of your home is replacement cost value and actual cash value. Replacement cost value will replace items with similar or identical value and make. Actual cash value will replace your items, but also account for depreciation. This means that as the market value of the item goes down, so does the amount you will receive in compensation. Actual cash value insurance usually costs less but may not provide enough compensation to completely replace your losses.
Keep in mind that not everything will be covered under your home insurance policy. Home insurance policies have limited coverage for such items as jewelry, furs, art, gold and firearms.
How Much Home Insurance Do I Need?
Home insurance comes with what is known as an 80% rule, which is where the replacement value of your home comes into play. It’s recommended that you purchase home insurance coverage for at least 80% of your home’s replacement value. An insurance agency may not cover all the damages covered by a policy if you do not have at least 80% of the home’s replacement cost in coverage. For example, say your home’s replacement value is $400,000. A bad storm sweeps in that causes tons of water and wind damage amounting to $100,000. You’ve bought a home insurance policy worth $240,000 (60% of your home’s replacement value.) Despite the fact that the policy ($240,000) is on appearance more than the damage ($100,000), this policy likely won’t cover all of the damage. Instead, the insurance agency will only cover the percentage of coverage purchased, which is the coverage amount divided by the worth of the home multiplied by 80%. So, in this case, $400,000 x 80% is $320,000. $320,000 is the amount you should have purchased for your home. Instead, $240,000 divided by $320,000 is 75%. Thus, the insurance company will only pay 75% of the $100,000 worth of damages, leaving you with the leftover $75,000.