The One Question You Must Ask Your Homeowners Insurance Company Right Now

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  • The cost of construction is up these days due to materials shortages and higher labor costs.
  • As a homeowner, there's one important thing you need to do to make sure you have adequate insurance coverage.
  • Check to make sure your policy will cover a complete rebuild of your home.

It's something you can't afford to gloss over.

Homeowners insurance is something you must put into place in order to get a mortgage. But even if you're buying a home in cash and therefore don't need a mortgage, it's something you don't want to pass up.

Without homeowners insurance, you might incur a devastatingly high bill should damage occur to your property. And that sort of situation could technically leave you homeless.

But while having homeowners insurance is important, it's just as essential to make sure you have the right amount of coverage. And that's why it pays to ask your insurance company one key question today.

Do I have enough replacement cost coverage?

One aspect of your homeowners insurance policy is replacement cost coverage. If your home is completely destroyed by a fire, flood, or other event, you'll want to make sure you have enough coverage built into your policy to cover the cost of having it rebuilt.

But the cost of construction is higher these days than it's been in years past. Last year, many supply chains got battered due to pandemic-related issues, and that's caused the cost of many common building materials to rise. Plus, the cost of labor is higher now than it's been before. So all told, it generally costs more money to build or rebuild a home today than it might have even just three or five years ago.

That's why it's so important to make sure your current homeowners insurance policy provides you with enough replacement cost coverage to rebuild your home. If it doesn't, you could end up in a terrible situation if your home is destroyed completely.

Keep in mind that your home's market value isn't necessarily the same thing as its replacement cost. If you live in a hot market where the demand for homes is high, it may be that your home could fetch a $750,000 offer if you were to list it. But that doesn't automatically mean it will cost $750,000 to replace your home. That number, rather, may be $550,000.

But in some cases, your home's replacement cost can also be higher than its market value. It may be that your home would command $750,000 in the event of a listing, but its actual replacement cost is $800,000.

Why might this be the case? If you've over-upgraded your home, there may come a point where you can't get all of your money back at resale because buyers will only pay so much for a home in your neighborhood. But the cost of replacing your home is based on its size, layout, and features -- not buyer demand.

Make sure you have the coverage you need

The whole purpose of having homeowners insurance is to give yourself peace of mind that you're protected in the event of extensive property damage. And part of that is making sure you have adequate replacement cost coverage.

Now keep in mind that you won't be the one to determine your home's replacement cost -- that's a task your insurer will handle. But it's on you to ask the right questions to make sure your policy is providing you with the protection you need.

Our picks for best homeowners insurance companies

There are many homeowners insurance companies to choose from. We’ve researched dozens of options and short-listed our favorites here. Looking for a green build discount or easy bundle policies? Want an easy-to-use interface? Read our free expert review and get a quote today.

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