One of the integral components in calculating an insurance premium is knowing the replacement cost value of a home. Homeowners must realize that the replacement cost and the market value are not the same.
While the market value of a home may plummet or rise depending on a variety of factors, the cost to rebuild a home changes only as the cost and availability of materials change. A 33% drop in the market value of a home does not affect the availability or cost of building materials to replace the home in the event it suffered an insured loss. Therefore, homeowners must properly calculate and insure their home to the replacement cost value, not the market value.
There are several tools available on the internet (some are free and some charge a nominal fee) to help homeowners get a better handle on the true replacement value of their homes.
Free Replacement Cost Calculators
Home Insurance.com: For a quick, down and dirty calculation of a home's replacement cost, consumers can visit the Home Insurance.com website. Armed with the home's zip code and square footage, the website calculates the cost to rebuild on a per square foot basis in the zip code location of the home. Keep in mind that it is an estimated replacement cost based on recent construction in the area.
Building-Cost.net: This website takes a different, more detailed approach in determining the replacement value of a home. Building-Cost has a detailed online questionnaire in which the consumer provides information about the home. In order to get an accurate result using this replacement cost calculator, it is recommended that the homeowner take time to answer each question providing as much detail as possible. Building-Cost then compares the building criteria against the latest construction and labor costs in the home's area. The resulting replacement cost calculation is broken down by material costs, labor and equipment. While this type of calculator may provide more information than necessary for insurance purposes, it's good to have in order to compare it against other replacement cost calculations.
Replacement Cost Calculators for a Fee
Xactware.com: For $8.95, homeowners can register at the Xactware website. Once registered, the homeowner can use the Xactware valuation tool which guides the user through several questions to determine the replacement cost of the home. Their database uses the same information that insurance companies use to determine and replacement cost.
Insure to Value.com: Insure to Value.com offers three types of reports. Homeowners can select the free complimentary report which comes along with a free homeowner's insurance quote. If the free report is not specific enough, there's the second option which provides location specific cost information based on zip code. The third and most comprehensive report costs $19.95 and provides information based not only on location, but specific characteristics of the home to be insured.
Free vs. Fee Replacement Cost Reports
If the free replacement cost calculators are not sufficient to give a proper valuation, it's worth spending the extra $10 or $20 for a full report. When it comes to getting the best price on a homeowner's insurance policy, the nominal investment to properly determine the replacement cost is worth it.
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