Personal Insurance

Do You Have the Right Amount of Coverage on Your Homeowners Insurance?

Construction costs are on the rise due to increases in building material prices, inflation, and rising labor costs. If you already own a home, you may not think these cost increases will affect you. However, they have a direct impact on the amount of insurance you should have on your home.

If your home were to be destroyed by fire or another covered loss, you need to have the right amount of insurance to cover the cost to rebuild your home (the “replacement cost”). This amount is different than market value (the amount you could sell your home for).

In this article, we discuss the factors that affect replacement cost and how you can ensure you have the right amount of insurance for your home.

Changes to Replacement Cost

When construction costs increase, due to changes in the market and the effects of inflation, this increases the replacement cost of your home. The replacement cost may also increase if you make improvements to your home, such as:

  • Upgrading windows, electrical, and/or plumbing
  • Remodeling the kitchen and/or bathrooms
  • Finishing your basement or converting an attic into livable space
  • Building an addition on your home
  • Adding a deck, patio, or porch
  • Upgrading the exterior of your home

As the value of your home increases, it is important to adjust the amount of coverage on your insurance policy as well. If you have made improvements to your home, let your insurance agent know so they can update your policy.

Even if you haven’t made any upgrades or renovations, your insurance policy will still need to be updated from time to time to keep pace with rising costs. If you don’t adjust for these changes, you could end up underinsured, which can be very costly. To account for rising costs, homeowners insurance companies regularly provide an option called “inflation guard.” With this option, your policy coverage will automatically adjust to match current replacement value for your home when your policy renews each year.

Some types of homeowners policies have a coinsurance clause that requires a home to be covered at a certain percentage of the home’s value – typically at least 80 percent. If rising construction costs have caused you to no longer meet the coinsurance requirement, you could be left paying out of pocket for some of the costs to rebuild / repair your home. While you will still be covered in the event of a loss, you may not get the full replacement cost of your home.

Estimating Replacement Cost

Your insurance agent can help you calculate the replacement cost of your home with an online tool called a replacement cost estimator. The estimation is based on a variety of factors, including your home’s age, location, size, building materials, and craftmanship upgrades as well as the cost of local labor.

Another option is to hire an independent appraiser. This is known to be the most accurate way to find the replacement cost of your home. An appraiser will do an in-person inspection of your home. They will also be up to date on building codes in your area, and they can give you an estimate that includes the cost to rebuild up to code.

Making Sure You Are Properly Insured

Here’s how you can make sure you have the right amount of coverage and avoid being underinsured.

  • Understand your policy. Is your home insured for replacement cost, or does your policy have a co-insurance clause? This information is usually located in the “conditions” section of your policy. Not sure how to understand the policy requirements? Reach out to your insurance advisor for assistance.
  • Know the current replacement cost of your home. You should insure your home for replacement cost (the amount it would cost to rebuild your home). Because construction costs can change rapidly, it is important to assess the replacement cost on a regular basis to ensure you have the right amount of insurance. We recommend evaluating the replacement cost every one to two years.
  • Purchase the right amount of insurance. Meet with your insurance agent to discuss your homeowners policy and keep them up to date on improvements you make to your home. They can help ensure you have the right amount of coverage.

Keeping your insurance in line with your current needs is an important part of owning a home. Reach out to your Leavitt Group insurance advisor today to schedule an insurance review.

Leavitt Group—national strength, local trust. Leavitt Group is the 14th largest independently held insurance brokerage in the United States. We pride ourselves on our experience and ability to help our clients succeed. Contact an agency near you


  1. Do we need to recalculate replacement cost now, or can we wait until renewal? Will your agency assist in this process?

    1. We recommend reaching out to your insurance agent to ensure your home is insured correctly for current conditions.

    1. You can ask for recommendations from local real estate agents and also search on Google for appraisers in your area.