The Hanover Insurance Group

Understanding your home's "replacement cost"

Your home's replacement cost is a major factor in making sure you are correctly insured.

Here's a statistic that may surprise you: more than half of homes in the US are underinsured*. This may be because home insurance policies are often believed to provide coverage based on a home's market value, as opposed to its replacement cost. Understanding the difference between these two concepts is a key factor in making sure your coverage is up to the high standards of your home.

Replacement cost versus market value

When you think of what your home is worth, you tend to think of either what you paid for it, or the price you can sell it for on the open market. This may be affected by factors beyond the size and features of your home, such as its neighborhood, school system, market demand and many other external considerations.

But insurance carriers are more concerned with the replacement cost of your home. This is essentially the amount it would take to rebuild your home from scratch in the event of a total loss. There are many factors that go into determining this figure, and as a result, a home's replacement cost often (and sometimes greatly) differs from its market value.

Here's an example (for illustration purposes only). Let's say you purchased your home for $225,000, and you opt to insure it for this amount. But then, unfortunately, a fire destroys your home completely, and the cost to rebuild it, factoring parts and labor, comes to $280,000. You would be underinsured for $55,000 – which means you may not have enough funds to rebuild your home the way it was.

Some factors that go into replacement cost

  • Roof and shingle style and quality, which can vary widely from home to home
  • Exterior features like porches, decks, and breezeways
  • The age and quality of your heating and cooling systems
  • The materials used in your kitchen and/or bath
  • The style of your garage, and whether it is attached
  • Present-day costs of building materials and labor
  • The costs of debris removal, which are not included in new home construction

Coverage A-OK

Replacement costs can change during the life of your home. That's why it's important to make sure you have the coverage you truly need should you ever suffer a total loss. Contact The Hanover and your independent insurance agent, who have the tools and expertise that can help you determine the right replacement cost for your home.

* Marshall & Swift/Boeckh

All products are underwritten by The Hanover Insurance Company or one of its insurance company subsidiaries or affiliates ("The Hanover"). Coverage may not be available in all jurisdictions and is subject to the company underwriting guidelines and the issued policy. This material is provided for informational purposes only and does not provide any coverage. For more information about The Hanover visit our website at

LC 2018-022