Editor’s note: This article was originally published on June 7, 2013 and was updated on July 24, 2015.
The replacement value of your home is probably the most important number you’ll see on your insurance policy. This is the value that the insurance company will use to calculate your claim should anything ever happen to your home, and you need to make sure you get it right so that you’re properly insured.
In the event that anything ever happens to your home, your insurance company will use your replacement cost to calculate your claim.
The replacement value, also referred to as "replacement cost", is what it would cost to rebuild your home from scratch. As such, it will be different from the market value of your home and the tax assessment value of your home since building a home is a very different situation than purchasing one.
What is my Home’s Replacement Cost?
To arrive at a replacement cost, fill out this home assessment checklist (attached below) provided by the Insurance Bureau of Canada and take it to your broker when you renew your policy or look for a new one. You are much better off getting a professional broker to calculate the cost rather than trying to go it on your own as they will be aware of hidden costs that you may not be.
Don’t Skimp on Replacement Value
In many cases, the size of your premiums are directly tied to the replacement value on the policy. Since this is a carefully calculated number, don’t skimp on it by trying to have it reduced. There are always hidden costs in construction that you can’t account for in advance. For example, even if you have special access to low-cost building materials, the labour costs may be more than you bargained for.
Keep Your Broker Informed of Renovations
We’ve said it before and we’ll say it again: tell your broker everything. If you get $12,000 worth of windows put in, and there’s a fire that takes out your new windows, they may not be covered if you didn’t let your broker know about their installation. For some renovations, you may even be looking at discounts on your policy at renewal time, so it’s definitely worth it to pick up the phone.
Can’t I Just Take the Replacement Cost and Move?
This is generally not allowed in most insurance policies. The idea behind replacement value is just that; replacing your home on the property you own rather than purchasing a new property. One thing you may want to check on is if accommodation costs for a short-term house rental or hotel rooms are covered while your home is being rebuilt; a cheaper policy may skimp on this feature and it could leave you out of pocket for these expenses if something happens to your home.
Guaranteed Replacement Cost
Guaranteed Replacement Cost is either available as a feature of your policy or as an additional endorsement that you can purchase, and it’s worth checking with your broker to see if you’ve got it. It prevents the replacement cost of your home from being reassessed at claim time, and may provide up to 20% more in value in order to cover accommodation, disaster recovery services and other items you may need if you lose your home.
Want to know more about making sure you’ve got the right replacement cost on your home insurance policy?
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