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How do insurance companies settle on the cost to rebuild a house?
I live in an area with a lot of tornado activity, so I'm worried that some time down the line, my house may be destroyed and need to be rebuilt. In that scenario, how would an insurance company decide on the cost of rebuilding?
Shannon Martin · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
There are two different types of claim payouts for a home: replacement cost and actual cash value. For replacement cost, carriers calculate how much it will cost to replace your home based on the current price of materials and labor. This can also include contractors, debris removal, and storage, which is why the home’s insured value tends to be higher than the purchase price. An actual cash value payout is replacement cost minus depreciation (age or life expectancy of the dwelling or property).
For more information about this topic, check out this article: [Actual Cash Value vs. Replacement Cost: What’s the Difference?] (
https://getjerry.com/advice/actual-cash-value-vs-replacement-cost-whats-the-difference-by-cheryl-knight
).View full answer
- Gregory R.
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