How to Calculate Replacement Value

The term "replacement value" is used to describe the amount of money needed to replace damaged items with new items. Depending on the items being replaced, this amount may not be the same as their original price. This term is often used in connection with home loss due to flood, fire or other disasters. In order for the insurance company to determine how much needs to be paid to the owner, the replacement value of the home and/or its contents must be calculated. The insurance company will determine this value based on the terms of the policy, but there are also websites with online forms that can help the owner evaluate the items being replaced. This article will focus on calculating replacement value for a home.


Step 1

Read your homeowner's insurance policy to understand the policies on replacement value. As you may learn, the replacement cost of a home is not the same as the market value. In other words, the insurance company will not issue a check to you in the same amount as your home's selling price (if it were on the market). The check you will receive will be the cost of building a new, similar home. Market values can fluctuate due to many factors, but the cost to rebuild homes is based on the cost and availability of materials and labor.


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Step 2

Refer to the amount of coverage listed on your homeowner's policy. Your home should be insured for its full replacement cost. Sit down with your insurance agent and discuss the particulars of your home. You will need to cover features such as: square footage, number of bedrooms and bathrooms, kitchen characteristics, basement, fireplace, floor coverings and other features. The insurance agent will use a proprietary formula to generate an estimate of the replacement cost.



Step 3

Determine the replacement cost by using a free online calculator, such as This site uses a questionnaire to determine the replacement value, taking into account your home's building materials, design, quality, size, shape, heating, cooling and geographic area. There are also fee-based replacement cost calculators online, such as and These offer services ranging in price from $8.95 to $19.95.


Understand the terms regarding replacement value in your insurance policy. In some cases, the current market value will determine the replacement value. In other cases, insurance companies involve many other factors in calculating replacement value.



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