The value of your home

How to determine your homeowner's coverage

Your first step in determining the right homeowners coverage is estimating the replacement cost of your home. The second step is selecting the coverage amount that best fits your needs. We recommend that you purchase an amount of coverage equal to the estimated replacement cost. But the choice is yours. Determining your home’s estimated replacement cost is important because this will ultimately determine which policy options are available to you. Since it is impossible to predict today what the exact cost will be to replace your home in the future, it’s important to have enough coverage to account for unforeseen circumstances.

Understand the difference between market value and replacement cost

“Replacement cost” is the amount needed to repair the damage or to rebuild the home to its pre-loss condition. The replacement cost of a home is NOT the market value of the home, its purchase price or the outstanding amount of any mortgage loan. It does not include the value of the land, but is the cost of rebuilding your home. New improvements or required upgrades are also not accounted for in the replacement cost.

You've worked hard to get your home. We’ll work hard to help you protect it

Before you purchase a new home, make sure that you determine the appropriate amount of coverage needed. When you have the home appraised, ask if a replacement cost estimate is available. Or consult with your local builder association or a reputable builder for an estimate.

Be aware of any architectural details or unique building materials that may affect your estimated replacement cost, such as:
  • Upgraded bathrooms or kitchens (including cabinets)
  • Additional rooms
  • Custom molding or arched windows
  • Other unique features
A contractor or appraiser can help estimate your home's replacement cost

Building contractors or professional replacement cost appraisers are a good source for obtaining an estimated replacement cost of your home. Estimates from these sources should reflect your home’s features, like those mentioned above. If you are unable to obtain a detailed estimate from these sources, your State Farm agent can help provide one for you.

Review your policy annually to make sure that your coverage meets your needs
  • Have you recently remodeled or improved your home? When you upgrade or improve your home, you may increase your home’s estimated replacement cost.
  • Has the rate of inflation risen since your last appraisal? Your agent provides coverage that automatically adjusts each year in an effort to compensate for increases in construction costs in your area. However, certain conditions such as severe weather can increase the demand for labor and materials, and raise costs beyond normal inflation. It is important to update your coverage amount each year to keep up with the changing economy.
  • What influences the building costs in your area? Market conditions in your area may impact the amount it will cost to rebuild your home if you experience a loss. Replacement cost estimates are influenced by supply of labor, demand for labor, and cost of construction materials. Staying abreast of the current market conditions in your area, and changing your coverage amount accordingly, will help you maintain 100% estimated replacement cost coverage for your home.
Some important things to consider when determining your coverage amount: Your home’s estimated replacement cost is different than its market value (real estate cost)
  • Each time you remodel or improve your home, you should adjust your coverage amount accordingly.
  • If your home is made of unique building materials, make sure they are reflected in your replacement cost estimate.
  • Stay abreast of the fluctuating building costs in your area and update your coverage amount accordingly. Make sure that you maintain coverage at 100% of your home's estimated replacement cost at all times.
  • It is important to review your coverage annually and inform your agent of any changes you’d like to make.