How to Calculate Insurance for Buildings

Determine the replacement cost for your building to calculate the insurance you need.

A building is one of the biggest investments you can make, whether it's a home, an apartment building, an office building or a skyscraper. To protect this investment against loss, you need insurance coverage. While it's true that insurance agents have tools to help them determine reconstruction costs, it is ultimately your responsibility to guarantee that you purchase enough insurance to replace your building if it is destroyed. You can accurately calculate the insurance you need for your building in a few steps.


Step 1

Determine the replacement cost for your building by multiplying the average reconstruction cost per square foot by the combined total square footage for all floors in your building. Reconstruction cost per square foot varies by location and type of building, so the easiest way to determine this is to hire a surveyor or reconstruction cost appraiser. You are interested in replacement cost, not market value.

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Step 2

Determine the value of insurable items within the building. For your home, this will be your personal belongings. For a restaurant, it will include equipment and inventory. For office buildings, calculate furniture and tenant improvements, if applicable.


Step 3

Provide this information to your insurance agent or broker, as well as any other information he requests. He will create an insurance quote for your building.


If you already know the average reconstruction cost per square foot for your type of building in your area, from a recent remodel, friend in the construction trade or other source, you can calculate the replacement cost yourself without hiring a surveyor. Follow the formula outlined in step 1.


There can be severe financial consequences for under-insuring your building. Do not guess at the reconstruction cost in your area or intentionally purchase less insurance than you need.