At our Albany NY Insurance Agency we speak with many people that get confused as to what exactly Replacement Cost Value means on their home policies. Replacement Cost Value or “RCV” simply means the amount of money it would cost to replace your damaged or destroyed home with a similar or exact home at the current date of loss. In the event of a total loss, the total cost to replace would also include any demolition and debris removal expenses.
People’s confusion surrounding RCV seems to center around the idea of “Market Value” as opposed to the actual cost to replace a home. For instance, someone may purchase a 1,500 square foot home in a desired neighborhood in Clifton Park NY for $500,000, which of course, includes the land. RCV does not include land or it’s intrinsic value, only the actual cost to replace the home in the event of a total loss. If the cost to rebuild the home is $200 per square foot at that particular point and time, the RCV would be at $300,000.
So just how do we come up with a reconstruction cost value estimate for a policy? For every NY homeowners insurance quote we prepare, we input the home’s structural characteristics such as construction type, build model, exterior features, roof type, basement, along with multiple interior features of the kitchen, cabinets, floors, doors, wall structures, etc. into a reconstruction cost estimator to compute the value to use as a policy dwelling limit. The calculators are very sophisticated and take into account, the area’s cost of materials and labor while also adding an amount for potential demolition and debris removal. Most calculators are also tied into the county’s home database which pulls data for any specific home’s building characteristics filed with the county through permits and other construction filings.
Even with all of these sophisticated home valuation tools, estimates are not perfect. Many unforeseen factors can cause a reconstruction cost estimate and resulting NY home insurance policy dwelling limit to be too low. Factors such as human error, county database errors, unreported building additions and improvements, and more can cause an undervalued policy.
Also, it’s important to note that sudden shifts in the price of materials and labor can quickly cause homeowners policy RCV to be inadequate.
To combat valuation issues or sudden shifts in home rebuilding costs, most NY home insurance companies offer Extended Replacement Cost or even Guaranteed Replacement Cost options on their policies. These valuable endorsements usually do not cost much at all and provide a cushion of protection for homeowners from an extra 25% to 50% of dwelling limit protection all the way up to no-limit for home replacement.
Make sure to check your home policy to see if you have Extended or Guaranteed Replacement Cost Protection on your current policy. If not, or if unsure, please contact your agent or feel free to call us here at the NY Insurance Hub. We’d also be happy to provide updated NY home insurance quotes with current RCV figures. The last thing you want is to have your home burn down and be under-covered by tens to hundreds of thousands of dollars.