How to Calculate Your Home’s Replacement Cost

If disaster strikes, will you have enough insurance to repair or replace your home?

Many homeowners take out a policy for the amount their lender needs to buy a home and never check their coverage limits again. Unfortunately, this can leave them at risk of being underinsured and unable to rebuild after a loss.

Here’s how you can make sure you have enough insurance to replace your home, and why rebuilding costs can increase dramatically depending on where you live.

While every home is different, you can estimate the average cost to replace a home like yours. Enter your state, your county and your home’s square footage, and the calculator will take into account several factors, including the cost of labor and building materials in your area, to provide an estimate.

gave The replacement cost of your home Your home is not worth the market value. Depending on the housing market in your area, your home may sell for more than it would cost to rebuild on your land, or it may sell for less. The cost of new construction may also not be a reliable estimate, as reconstruction may involve additional costs such as demolition, cleanup and site preparation.

That’s why rebuilding costs are a better way to estimate how much homeowners insurance you need.

The average cost per square foot to rebuild a home in the U.S. is $280, according to a NerdWallet analysis of residential reconstruction cost data provided by climate risk modeling firm First Street. That equates to about $410,000 cost to rebuild a typical American home.

But replacement costs can vary significantly from state to state, due to differences in local labor and material prices. For example, the average remodeling cost in Louisiana is $331 per square foot, a NerdWallet analysis shows, while Nebraska homeowners pay about $248 per square foot.

The primary factors that determine remodeling costs are the cost of construction materials and labor in your area. Those two things can fluctuate for a number of reasons, including inflation and labor shortages. Tariffs and natural disasters can also affect the cost of rebuilding your home.

When estimating replacement costs, try to consider details about your home that could make it more expensive to restore. These include:

• The age of your home. Historic homes have features that can be expensive to restore. Older homes may also have systems that need to be replaced to meet modern building codes.

• Style your home. Some architectural or residential details can be expensive to recreate, such as vaulted ceilings or storybook flourishes on your home’s trim.

• Type of home foundation. A walkout or finished basement can mean a higher cost to your remodeling bottom line because it requires additional excavation and reinforcement.

• Features of the house. High-end finishes in bathrooms or top-of-the-line cabinetry and appliances in kitchens can add extra to remodeling costs.

Understanding how much it will cost to replace the structure of your home is vital to avoid underinsuring. Unfortunately, not having enough homeowners insurance to cover a significant loss is not an uncommon scenario.

For example, researchers at the University of Colorado analyzed 5,000 policyholders who filed claims in December 2021 following the Marshall Fire on the outskirts of Boulder. The data showed that 74 percent of these policyholders were underinsured. More than a third of underinsured policyholders had their coverage significantly reduced, leaving them on the hook for 25% or more of the money needed to replace or repair their damaged homes.⁽⁰⁾

Once you’ve determined what coverage you need for your residence, there are options to ensure your homeowners policy limits meet your needs.

Inflation Guard There is an additional coverage that automatically increases the coverage limit of your policy by inflation. This is sometimes included as standard or offered as an endorsement for an additional fee. It typically increases your residential coverage by 2% to 4% each year to account for rising inflation, which means your premiums may rise accordingly.

While most homeowner’s policies include replacement cost coverage, it may not be enough in some cases — for example, if rebuilding costs increase after a natural disaster in your area. Extended replacement cost coverage Pays an additional percentage over your limit (from 10% to 50%) if your home is destroyed by a covered loss and the cost of rebuilding exceeds your policy’s dwelling coverage limit.

Guaranteed replacement coverage Usually expensive and not all insurers offer it, but it’s exactly what it sounds like. Your insurer will pay whatever it costs to rebuild your home and restore it to the condition it was in before the loss.

This type of insurance can be especially helpful if you have an older home. Ordinance or bylaw coverage pays the additional costs of complying with current building codes if you have to rebuild. Some insurers offer ordinance or law coverage up to 10% of your occupancy limit, so check with your agent to see if your policy already covers this.