Many home insurance policies provide replacement cost coverage for your "dwelling" or home. How do you figure replacement cost and is replacement cost enough? Here are some things to consider.

 

Replacement cost in this article refers to the cost to rebuild or repair your home or property at current construction prices using similar materials. For example, if your home burns down and you are insured to replacement cost than you should be covered for the cost to rebuild the home like it was.

However, there are situations where building codes may have changed or material costs suddenly sky rocket due to demand, that may not be covered by the insurance policy. You can often request that you get guaranteed replacement cost or endorsements to provide extra coverage if you are concerned about one of these situations.

Replacement cost is determined by your home's square footage, local construction and materials costs, customization, the number of rooms and exterior structures and other factors. You can get a rough estimate of this by contacting a local real estate agent or builders association and getting a current cost-per-square foot figure for similar homes in your area. Then multiply that by the square footage.

An insurance agent can also help you figure this out, and once you get a policy often has an insurance appraisal done on your house to make sure you're insured to the right amount. This appraisal could be as simple as a drive-by or exterior walk around, or an interior/exterior survey. It depends on your home, the amount of customization you have and the insurance company.

It's a good idea to have a rough estimate of your replacement cost when you are shopping for home insurance quotes. Since rates vary from one insurance company to the next, you should get several quotes. It helps to provide the same replacement cost figure to each company in order to get accurate comparison quotes.