Business Eden Blog

Homeowner insurance – replacement cost calculation

Is replacement cost the same as the sale price of a home?

• No, it isn’t. The selling price encompasses the value of the estate as well as the land the home is build on. The replacement cost is equal to the amount that would have to be spent in order to replace the structure. Normally, owners are not required to insure the value of their land, but it is still sensible to have an appraisal of the home finished to determine the replacement cost of the home.

How is the replacement value of my belongings calculated?

• Majority of insurance policies that offer coverage for personal property will estimate a value of all the items based on a formula. Usually, the value is established as a percentage of the replacement value, or cash value, a home is insured for. Although it may seem that the amount allowed would be sufficient to cover the damaged or stolen objects, replacing each and every object at current prices is likely to become very expensive. You are advised to consider taking photos, making an inventory and evaluating all your belongings to arrive at a total replacement cost. If your policy doesn’t rise to your expectations, think about raising the standard coverage to ensure that you have proper coverage. If necessary, buy a separate policy for specific objects, for example jewelry, electronics or a valuable collection that may not be fully covered under a standard policy. It is also worthwhile to add an inflation clause or endorsement, so your policy continues to keep up with rising prices.