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Your Homeowners Policy Explained


Understanding Homeowner’s Insurance Options

If you’re a homeowner, your house needs to be insured for a minimum of 80 percent of its value (not counting the value of the land). You must be proactive and review your current homeowner's coverage at least annually to make sure that your insurance is sufficient to rebuild or repair your home after a disaster. So, what do you need to look for during the annual review of your homeowner’s policy? The Insuring Your Home and Everything in It worksheet delves into the key components required to make sure that you’re fully and adequately covered. 

Before you dive into the worksheet, here are a few terms you need to know: 

Actual-cash-value coverage: If you have a policy that pays the actual cash value of your home’s contents, you’ll get a check for what your stuff was worth before it was destroyed — not what it would cost to replace it all. 

Declarations page(s): This annual statement from your insurance company outlines your coverage and your annual premium. Keep it with your policy. 

Full replacement cost: If your property is destroyed, the insurance company is obligated to fully replace or rebuild your property without any deduction for depreciation. Obtaining full replacement cost on your personal property will cost you only about 10 to 20 percent more than the actual-cash-value coverage. Comprehensive homeowner’s coverage must include full replacement cost to repurchase all the items in your home today if they’re lost, stolen, or destroyed. 

Guaranteed replacement cost: Even if the damage exceeds the limits on your policy, the insurance company is obligated to fully replace or rebuild your property without any deduction for depreciation. Guaranteed replacement policies aren’t exactly what you might imagine. Insurers limit the amount that they pay out to replace or rebuild your home to usually no more than 20 percent above the amount for which your home is insured. 

If your home appreciates beyond the level of coverage, the policy won’t cover that amount — even though you thought you had guaranteed replacement coverage. Guaranteed replacement coverage doesn’t end with just the dwelling itself, either; you must also think about the value of the contents of your home. 

Liability: This type of insurance helps protect you financially if someone is injured by you on your property.

How to Determine Home Replacement Cost


Replacement costs on a high-end home would usually be in the neighborhood of $140 to $200 per square feet. This is the cost a builder would charge to re-build the property. This is a wide range in price. The actual replacement cost will be determined by the actual cost to reconstruct according to the now current building standards, and to the same fit-and-finish of the original. So, likely it will be on the high end of the estimate, and could be even higher. 


Square feet can provide a simple tool to help you determine if you may be over or underinsuring your home. Replacement costs can range from $75 to $200 per square foot for an average-to-premium home and well over $325 per square foot for a custom-designed home..

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