What Is Replacement Cost for Insurance?

Insurance terms and policies can seem complicated; replacement cost for insurance doesn’t have to be. Replacement cost for insurance is as it sounds: the amount of money it would cost to replace an item. When insuring your home for replacement cost, the amount of coverage listed on your policy is the dollar figure your insurance company has determined is required to replace your home. In short, the amount of money it would cost to completely rebuild your home from the ground up in the event of a total loss. If your home is currently insured for $600,000 replacement cost, your insurance company has calculated that your home would cost $600,000 to rebuild today, using modern materials, along with current construction technology and techniques.

What Is Covered By Replacement Cost?

Replacement cost for insurance is subject to the terms and conditions of your homeowner’s policy. The terms and circumstances of losses are stipulated in your policy. Some items, such as jewellery or furs, may have limits of coverage within your policy; its best to confirm coverage limits with your agent or broker. As for replacement cost for damage to your actual home, or contents outside of items subject to special limits, replacement cost covers everything. If you experience a covered loss, replacement cost applies to all physical items; that’s everything from floors to ceilings, drywall, light fixtures, furniture, clothing and everything in between.

How Does Replacement Cost Insurance Work?

The mechanics of replacement cost are fairly straight forward. Rather than applying depreciation to any damaged portions of your home, your insurance company simply pays for the repair or replacement. For example, during the spring thaw your sump-pump malfunctions and your basement floor is covered with two inches of water. This is every homeowner’s nightmare! Your carefully selected flooring is now waterlogged and ruined. How much money will you get for the ruined flooring? Will it be enough to replace it? With replacement cost coverage these are questions you don’t have to ask.

When facing these circumstances, your insurance company would pay to have your floor replaced with the same flooring you have, or with flooring of similar kind and quality if your existing flooring is no longer available. You don’t have to worry that your floor was five-years-old and may have had signs of wear and tear. Depreciation is not calculated when it comes to replacement cost. Your insurance company will simply pay for the new flooring and its installation.

Replacement cost at its core is designed to put you in the same position you were in prior to a loss. If you had high-quality, water-resistant laminate flooring in your basement, your insurance company will pay to have the old water-logged flooring removed, cover the cost of any required clean-up, and will pay to have the same flooring installed in your basement. It is your insurance company’s job to put you in the same position you were in before you experienced a loss.  Replacement cost is designed to ensure this can and will happen.

How Do Insurance Companies Determine Replacement Cost?

Once you understand what replacement cost for insurance is and how it works, the natural next step is to wonder how in the world insurance companies determine replacement cost. The answer: they ask a lot of questions.

Insurance companies have specially designed systems they use to estimate the Replacement cost of your home. Once all of the necessary information is gathered; the system will determine your replacement cost for insurance.

  • Square Footage: The largest factors considered in replacement cost are square footage and quality. Logically, larger homes would cost more in terms of material and labour to replace; therefore, the higher the square-footage the higher the replacement cost.
  • Home Quality & Exterior: The quality of your home is also a factor; this takes into consideration the shape of the house, the type of foundation, the materials used in framing, the exterior finishes: brick, siding, stone, stucco, etc.
  • Interior Finishes: Interior finishes are also considered: Is it drywall or plaster? What type of flooring, countertops, windows, doors? Marble countertops and solid hardwood doors will cost more to replace than the standard Formica countertops and builder-grade doors.

The list of questions and level of detail considered to determine replacement cost for insurance is seemingly endless.

Reviewing these details with your insurance company is vitally important to ensure you have ample coverage to protect your home. Pondering all these details can be an overwhelming task.  Leaving the fate of your most valued possession in the hands of an insurance system can also be anxiety inducing.

Accurately Estimate Your Home’s Replacement Cost

The Douglas Residential Cost Guide can help alleviate your fears. The Douglas Residential Cost Guide is a finely-honed system developed over several years by leading industry experts. Utilizing Douglas Residential Cost Guide gives homeowners the power to complete an extensive review of their home and calculate home replacement cost before ever calling their insurance company. It’s peace of mind for homeowners; ensuring your home and your family are properly protected in the face of any challenge. Let Douglas Residential Cost Guide help you protect your home today.

Insurance to Value

Your home may very well be one of your largest financial investments, so it’s important to ensure that it is fully protected in the event of a fire or other extreme weather incident where your home may be unsalvageable. When evaluating the coverage options provided by your insurance provider, it can be hard to navigate the insurance options available and to know exactly just how much insurance coverage you will need in the event of a loss. In this blog, we evaluate the most common home or dwelling values and how they differ from one another.

What is Insurance to Value (ITV)?

To put it simply, insurance to value is to ensure that an insurance policy adequately covers and protects the value of a property or dwelling in the event of a total or partial loss. It is the calculated cost to replace a building or structure, as close as possible to its original state by an insurer and ensures that premiums adequately cover the value of the improvements located on the property. Alternatively, it can be viewed as full disclosure that the building being insured is to the value agreed upon.

There are three ways to estimate “home values”

There are 3 main home or dwelling ‘values’ used to determine the “value” of a residential structures:

  • Market Value
  • Assessed Value
  • Replacement Cost

Replacement Cost

Replacement cost is a term used in the insurance industry to reflect the estimated actual cost to replace a home in the event of a loss. For example, in the event of a fire completely destroying your home, a replacement cost claim would be used to cover the cost of labour and materials needed to rebuild your house. In this instance, the lot on which your home is located is not included in the “value” of your home, only the physical structure itself. Replacement cost is based on:

  • Material & Labour
  • Site Supervision Requirements
  • Architect Services
  • Contractor Fees
  • Foundations
  • Building Codes
  • Class of Dwelling
  • Dwelling Size

Market Value

A home’s market value is an estimate of the current price that a residence, along with other improvements and including the land/ lot it is situated on could be sold for in a specific real estate market. This is based on a variety of factors that do not necessarily reflect only the physical attributes of the dwelling but also includes factors such as the home’s location, the current real estate market and other external factors such as:

  • The desirability of the school district
  • The condition of the house
  • Scenic views and landscaping
  • Lot size and location
  • Economic factors

Assessed Value

The assessment value of a home is based on the home’s market value and is generally used to determine property taxes. The tax assessment value is usually estimated by a municipal property tax assessor and is based on market value. This may or may not be the same as your current market value depending on when it was assessed.

A tax assessment is based on factors such as:

  • Geographic location of the house
  • Lot size
  • Number of bedrooms
  • Number of bathrooms
  • Square footage of the dwelling
  • Age of the home
  • Exterior condition of the home
  • Added features such as a deck or garage

Understand Your Home’s Rebuild Cost

To ensure the cost to replace your home is fully covered by your insurance company in the event of a partial or complete loss, it’s important to know the replacement cost of your dwelling. Your insurance company may provide you with an estimated replacement cost for your home. However, if you are in the market for a new insurance provider, or are concerned about your insurance coverage, you may want to consider using an independent replacement cost calculator.

The Douglas Cost Guide: Trusted by Canadian Insurance Professionals

Douglas Cost Guide is the most comprehensive independent residential replacement cost calculator in Canada. It’s an essential tool for acquiring an accurate replacement cost for your home and is used and trusted by leading insurance professionals.

The Douglas Cost Guide evaluates a number of specific elements and components of your home and the rebuilding process in order to provide the most accurate replacement cost available. The costing data combines actual construction costs and estimates for residential dwellings in Canada.

In the event of a total or partial loss of your home, ensure that you are properly insured so that your home can be replaced with little out-of-pocket expense. Trust the Douglas Cost Guide to acquire an accurate home replacement cost.

Contact Douglas Cost Guide

Do Home Renovations Impact Home Replacement Costs for Insurance?

Undertaking home renovations can be a stressful yet exciting task. Sure, it will be a lot of work, but the payoff will be well worth the effort. With things like budgets, paint colours, and luxury finishing’s floating through your mind the last thing you might be concerned with is insurance. You just want a fresh new kitchen or bathroom, what does insurance have to do with it? Do home renovations really impact home replacement cost insurance? The short answer: yes.

How Do Home Renovations Impact Home Replacement Cost Insurance?

Any home renovation you undertake has the potential to increase or even decrease your home replacement cost.

What Type of Renovations Are You Undertaking?

Before you can answer how home renovations impact replacement cost, you must ask yourself the what: what type of home improvement are you undertaking? Will your renovation be a simple facelift: changing paint colours, updating hardware, purchasing new furniture?  These small modifications have a significant impact on aesthetic appeal but do not impact your replacement cost insurance.

Adding & Reducing Home Value

Renovations impact your replacement cost if you are adding or subtracting value to your home.  For example, adding an addition to your home will increase its square footage; it will naturally cost more to replace a larger home; thus, an addition would increase your replacement cost for insurance. Changing square footage from non-liveable to liveable space will also increase home replacement cost. If you’re planning to turn your currently unfinished attic space into the master-suite of your dreams, it will increase your home’s replacement cost. Logically, replacing an open attic with exposed ductwork, no floor, no drywall and minimal insulation would cost a lot less than it would to replace a fully finished space with proper insulation, drywall, flooring, ventilation and plumbing.

Creating a new space will increase the replacement cost of your home. However, in some circumstances, home renovations can decrease replacement cost. If you decide you have one too many bathrooms and not enough closet space, removing the unused guest bathroom and turning it into a gorgeous walk-in closet could decrease replacement cost. Rebuilding a closet will cost a lot less than replacing a bathroom.

Things to Consider When Undertaking Home Renovations and How It Will Impact Replacement Cost

The big thing to ask yourself when undertaking a renovation is “will these changes cost more to replace than what we currently have?”  The biggest impact to your home replacement cost is additional square footage such as additions or changing non-liveable space into liveable space.

Upgrading Features

Other renovations that have a tremendous impact on home replacement cost is upgrades or additional features – adding wainscoting or crown-molding to a room that previously didn’t have it will cost more to replace, and thereby will increase your replacement cost. Adding built-in elements, a wired-in surround-sound system, a wired-in security system, or even a bidet will all cost more to replace in the event of a loss.

Upgrading Finishes

Upgrading finishes can also increase the replacement cost of your home. Upgrading Formica countertops to granite, quartz, or marble; swapping vinyl or laminate flooring for ceramic or hardwood; or changing a particle-board vanity to a hardwood vanity would all cost more to replace. If any change you make would cost more to replace than what you originally had its safe to assume it will impact your home’s replacement cost.

When Should You Notify Your Insurance Company of Home Renovations That Could Impact Replacement Cost?

Any changes you make to your home should be communicated to your insurance company to ensure your home is properly protected.

Now that you’ve mapped out your renovation and understand the scope of the project, when do you notify your insurance company? When you have the renovation mapped out, an estimated cost, and an estimated date of completion you should call your agent or broker; they will make the necessary adjustments to your replacement cost at that point to ensure coverage is in place in the event of a loss during renovations. Once renovations are complete, you should call your agent/broker again to confirm the final cost and completion of the project.

It’s important to note that the estimated cost of your renovation does not directly correlate to the changes in your replacement cost. If you undertake a $10,000 renovation, it does not necessarily mean your replacement cost will increase by $10,000.

Find Out How Renovations Will Impact Your Home Replacement Cost

If you want to determine how much your renovation will impact your home replacement cost, our Residential Cost Guide can help. Using the Douglas Residential Cost Guide before your renovation and after its completion allows you to compare your home’s replacement cost pre and post-renovation. This will showcase the impact of any changes before you call your insurance company. Douglas Residential Cost Guide can set your mind at ease so you can fully enjoy your newly renovated space.

Factors that Can Affect Home Replacement Cost

It’s been established that home replacement cost is the amount of money it would cost to rebuild your home from the ground up in the event of a total loss. Trying to image rebuilding your home from the ground up is the stuff of nightmares! How much would it cost? What factors affect home replacement cost? Take a deep breath. Replacement cost can be overwhelming, but Douglas Cost Guide Inc. is here to help.

What Are the Most Important Factors That Affect Home Replacement Cost?

Many factors affect your home’s replacement cost, such as:

Size and Square Footage

First and foremost, the size and square footage of your house is replacement cost’s number one determinant. It will cost a lot more to replace a 3,500 square foot house than it would to rebuild a 1,200 square foot home; therefore, your replacement cost is drastically impacted by your home’s size or total square footage.

Age of The Dwelling

Age is also a determining factor. The age of your home helps to identify the era and architectural elements of the dwelling. Older homes may have detailed trim work, plaster and lathe rather than drywall, thick hardwood baseboards, detailed mouldings, and solid hardwood doors. If your home is an older home with older elements you want to be preserved and replaced in the event of a loss, this will increase your home replacement cost.

Quality of Finishes

Another factor that can significantly impact your home replacement cost is the quality of the finishes.  Granite, quartz or marble countertops are significantly pricier to replace than a Formica countertop. Hardwood, ceramic or marble floors cost more to replace than standard carpet, vinyl or laminate flooring. Hardwood vanities, cupboards or kitchen islands will be more expensive to replace than standard builder-grade materials; therefore, the quality of your home finishing’s affect your home’s replacement cost.

Other Factors That Affect Home Replacement Cost

The most significant factors that affect home replacement cost have been established, but there are other elements that can affect your home’s replacement cost. To determine your home’s rebuild cost, your insurance company factors in all the details of your house, from ceilings to floors and everything in between.

Ceiling Height

Elements you may not have even considered, such as ceiling height, are taken into consideration. Logically, rebuilding a home with 10-foot ceilings would require a full two feet of additional materials such as framing, insulation, and drywall, not to mention additional plumbing and electrical to get from one floor to the next in a two-story home.

Windows and Rooms

The number and size of each room are also considered; additional rooms require additional materials to frame and close-in walls, this affects your replacement cost. How many windows are in your home?  This is a question you’ve probably never contemplated before but is something that’s considered when determining the replacement cost of your house. If you’ve ever replaced windows before you know it can be an expensive endeavour; your replacement cost will reflect this.

Fixtures and Lighting

How many light fixtures are in the house?  Do you have pot lights? If so, how many?  Don’t know? Start counting! You’ll want those lights replaced in the event of a loss and thus need to ensure they are reflected in the replacement cost.

Other Factors:

Other factors to consider when evaluating your home replacement cost include:

  • What is the electrical amperage in the house?
  • What type of hot water tank do you have?
  • What type of furnace do you have, and how old is it?
  • What type of shingles?
  • When were they last replaced?
  • What is the exterior finish of your house: siding, brick, stone, stucco?
  • How many bathrooms in the house, and how many pieces in each bathroom?

Yes, the breadth of detail that affects home replacement seems overwhelming but running through the details isn’t as scary as it seems. If you still feel uneasy visit our Douglas Residential Cost Guide. Our guide has been finely honed by industry professionals to make your job as a homeowner a lot less stressful.  Let Douglas Residential Cost Guide worry about the details so you can concentrate on building memories in your fully protected home.

The Difference Between Replacement Cost and Actual Cash Value for a Residence

There is a lot of technical jargon and insurance terms thrown around when setting up a homeowner’s policy. Terms like actual cash value and replacement costs are two of the biggest mysteries. What is actual cash value? What is replacement cost insurance? More importantly, what’s the difference?

What is the Difference Between Actual Cash Value and Home Replacement Cost?

What is the difference between actual cash value and replacement cost for a residence? In short, actual cash value is reimbursement for the cost of an actual loss. If you lose a 10-year old roof, the actual cash value of a 10-year-old roof will be paid. With replacement cost, the insurance company would pay for the roof to be repaired or replaced with new shingles.  Replacement cost insurance is the coverage needed to replace things in the event of a loss.  Actual cash value insurance is the coverage chosen if you simply want monetary compensation for a loss.

In the event of a total loss, replacement cost insurance would rebuild your house from the ground up to put you in the same position you were in before the loss. Actual cash value would provide you the cash value of the loss, allowing you to move elsewhere and start over.

What is Replacement Cost Insurance?

Home replacement cost is a very important element of a homeowner’s policy; even when insuring your home for actual cash value, the replacement cost of your home is used as a baseline to determine a payout amount in the event of a loss. In addition to acting as a baseline for homeowner’s policies, replacement cost is as it sounds: it is the dollar amount it would cost your insurance company to completely rebuild your home from the ground up in the event of a total loss. In essence, how much would it cost your insurance company to put you in the same dwelling you were in prior to the loss to rebuild your home from the ground up using current construction materials and techniques? The answer is your home replacement cost.

What Does Actual Cash Value Mean?

At its essence, actual cash value insurance is replacement cost less physical and functional depreciation. It is the value of your home after considering wear and tear, age, and functionality among other factors. For example, if a storm passes through an area and destroys a portion of a home’s roof, shingles will need to be replaced. If the shingles on the roof were 25-year shingles that were installed 10 years ago, the insurance company will calculate depreciation on 25-year shingles to determine the worth of the shingles after 10 years of use.

Considering Depreciation When Determining ACV

Depreciation is the leading indicator in determining actual cash value. In addition to considering depreciation to calculate a payout amount, actual cash value insurance also makes a portion of any loss the policy holder’s responsibility. For example, if replacement cost of a home is determined to be $100,000 but actual cash value coverage of $80,000 is chosen instead, the home is insured for 80 percent of its replacement. This makes 20 percent of its replacement the policy holder’s responsibility, which also makes 20 percent of any losses the policy holder’s responsibility as well.

In the case of the damaged roof, depreciation would be calculated to determine the price for 10-year-old shingles.  Once the depreciated amount is determined, 20 percent of the amount would be deducted, and the remaining 80 percent would be paid to the policy holder. Only in the event of a total loss would the full amount of a loss be paid. If a home insured for an actual cash value of $80,000 is completely lost, the full amount of $80,000 would be paid to the policy holder.

Actual Cash Value vs Home Replacement Cost

In choosing to insure your home for actual cash value rather than replacement cost insurance, there is no obligation to rebuild the house. Actual cash value is the ‘take the money and run’ option, while home replacement cost insurance is designed to put you in the exact position you were in prior to the loss, completely rebuilt house and all.

How Do You Determine your Home’s Replacement Cost and Actual Cash Value to Ensure You’re Covered Appropriately?

This is where Douglas Residential Cost Guide comes in to play.

By using Douglas Residential Cost Guide you can determine what the replacement cost of your home would be and decide if replacement cost or actual cash value best suits your needs. Check out Douglas Residential Cost Guide today to ensure your home is fully protected.

How Do Insurance Companies Determine Home Replacement Cost? 

This is a question that many first-time or even veteran home buyers often ponder. Discussing your homeowner’s policy with an agent or broker, you’ll hear the term home replacement cost quite frequently. Sure, they’ve explained to you that replacement cost insurance is how much it would cost to rebuild your home from the ground up in the event of a total loss, but how is that number explicitly calculated?

Factors Used to Determine Home Replacement Cost

There are many factors used in determining home replacement cost. Insurance companies have specialized systems that help them determine an actual dollar figure for the replacement cost of your home. These systems consider all aspects and details of your home from big to small; the quality, size and style of your house are significant factors in determining home replacement cost. Most insurance companies will ask you several specific questions about your home, such as:

  • When was your home originally built?
  • What’s the total finished square footage?
  • How many bedrooms?
  • How many bathrooms?
  • How many pieces per bathroom?
  • Is there a basement?
  • Is it fully or partially finished?
  • What’s the foundation material: block or concrete?
  • Are the walls drywall or plaster?

Everything from ceiling height to floor coverings, and counter-top materials are all considered in home insurance replacement cost.

Additional Details Considered in Home Replacement Cost

To gain a better understanding regarding the particulars of your home, you might also be asked more specific questions regarding elements inside your residence, such as:

Do you have a fireplace?
Is it gas or wood burning?
Are there any specialty features in the home: built-in book shelves, chair rails, intercom systems?
Are the windows wood, vinyl or aluminum?
What is the roof covering?
When were the shingles last replaced?
What is the amperage in the home: 100 or 200 amp?
Wood siding, vinyl siding, stone or brick exterior?
Is there a crawlspace?
Is there a sump pump?

All of these details and materials are considered. Insurance systems factor in wall covering material, whether it is drywall or plaster, flooring and trim work and all other materials that would be required to rebuild the home; these factors are coupled with contractor rates to determine a cost per square foot.  After all these details are gathered and input, the system generates a dollar figure. This figure is your home’s estimated replacement cost. It is this number that determines how much you will get paid in the event of an insurance claim.

Home Replacement Cost Determines Other Coverages

The home insurance replacement cost figure acts as a baseline for other coverages in your policy as well. Contents coverage is usually based on a percentage of the replacement cost; general out-buildings or detached structures are generally based on a percentage of the home replacement cost, and so on. As such, it is extremely important that the replacement cost of your home is calculated accurately to ensure proper coverage.

Trust the Douglas Residential Cost Guides Accurate Replacement Cost Estimates

To ensure that your home is adequately insured, it is essential that your home replacement cost be as accurate as possible. The Douglas Residential Cost Guide can help you determine home replacement cost before ever stepping foot in an insurance office. Arming yourself with as much knowledge as possible about your home will help you protect it effectively. Douglas Residential Cost Guide is a finely-honed system used to carefully calculate home replacement cost for residential occupancy; it provides peace of mind for homeowners. Knowing how much coverage you need to protect your most valued asset before ever walking into an insurance office allows you to ensure your homeowner’s policy, and its coverages, are what’s best for your home. Your house works hard to protect you; in turn, Douglas Residential Cost Guide works hard to help you protect it.