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ASK KIM
Get Your Home's Replacement Value
by Kimberly Lankford

Is there a form I can complete to determine the replacement value of my home when buying homeowners insurance? Where can this be obtained?

Unfortunately, it's tricky to figure out your house's replacement value on your own. A contractor in your area can give you a general estimate of local construction costs per square foot, which you could multiply by the total area of your home.

But the real replacement cost will vary depending on the quality of the materials in your house and any special architectural features. An old house with marble mantels, carved woodwork and other special details will cost a lot more to replace than a similar-sized house made from basic materials -– even if they're both on the same block.

Insurance companies generally ask a series of detailed questions about your home -– including the square footage, special features and the quality of the materials -– then run the numbers through a database that includes local construction costs for each type of feature. And most high-end insurance companies, like Chubb, will send an appraiser to your house to look at everything and calculate the replacement cost. As a result, it's usually best to work with your insurance company or agent when figuring out your home's replacement value.

It's worth the effort. Several years ago, insurance companies would pay whatever it cost to replace your home if it was destroyed –- even if it ended up costing more than the amount of coverage you had purchased. But that practice cost insurers a lot of money, especially as construction costs went through the roof.

Now most insurance companies (other than high-end specialists such as Chubb, Fireman's Fund and AIG) cap their payout at 125% of the coverage you've purchased –- no matter how much it costs to rebuild your home. If you haven't kept up with the current costs, you could stuck paying hundreds of thousands of dollars out of your own pocket.

The biggest mistake people tend to make is to base their replacement-cost estimates on the house's market value. The amount of money someone would pay for the house has absolutely nothing to do with the house's replacement value.

Most houses made from basic materials cost a lot less to replace than they do to buy because part of the market value comes from the value of the land (which is still there, even if the house burns down). But some houses with unique architectural features may cost a lot more to rebuild than they do to buy.