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Do you have enough insurance coverage to rebuild your home?

Photo by StudioDin/

Many homeowners have taken on home-improvement projects during the pandemic, either by necessity or because they finally had the time. If the project included an addition, a remodeled kitchen or bathroom, or just changes to the home’s flooring or roof, they likely discovered that construction costs are soaring. Pandemic-related supply-chain issues have caused the cost of lumber, steel, masonry, plumbing materials, and even paint to skyrocket.

As a result, the home’s replacement value has likely increased. Think about this: If you had to rebuild your house right now, it would cost more today than it would have just a year ago. And even smaller home-improvement projects that involve wood and tile could directly impact your homeowners insurance.

A home typically should be insured for the amount it would cost to rebuild it—what insurers call “replacement cost.” This amount differs from and is often less than what you could get for your home if you were to sell it.

Unless you own a construction company, though, you probably can’t determine your home’s replacement cost on your own. That’s where your insurance agent comes in. He or she can help you review your home’s replacement value and adjust your coverage to accurately reflect the cost of rebuilding your home in the event of a total loss.

But sometimes even the best planning can’t anticipate the actual cost to rebuild. In the aftermath of a natural disaster, prices often rise due to high demand for construction materials and labor. That’s why most homeowners insurance policies provide the option of extending your coverage to repair or rebuild your home over your policy limit. This “extended replacement cost” (ERC) coverage is typically about 125 percent of your dwelling coverage limit.

For example, if your home is covered for $500,000 in replacement value with a 125 percent ERC, your dwelling coverage would increase up to $625,000 should repair or rebuild costs exceed your initial coverage limit. Without ERC coverage, any costs associated with repairing or rebuilding your home above $500,000 could leave you to pay the balance.

Ask an agent

Question:  I’m adding a second story to my house. At what point in the process should I increase my homeowners coverage?

Answer: It’s a good idea to call your insurance agent to discuss your coverage options before construction starts. That way, your coverage can continue to meet your insurance needs should a fire or other catastrophe damage your home during the renovation process. —Alan Sanchez, AAA insurance agent

 Your insurance agent can provide more information. Visit a AAA branch, call (855) 222-5012, or go to

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