Whether you’re reconstructing parts of your home to start a new chapter of your story, or you’re rebuilding after a loss to continue making memories, it’s important to have an appraisal done by your broker.

What many people may not know, is that reconstructing a building after a loss is even more expensive than constructing a new build. A key part of insuring your property to value is understanding the difference between Replacement Cost vs. Reconstruction Cost policies.

What is Replacement Cost?

Replacement Cost refers to the cost to replace or rebuild an entire building, like your home or cottage, with equal quality and construction.

Here is the sticking point – Replacement Cost does not take into consideration factors, such as:

• Improvements necessary to conform to current building codes.
• Demolition or debris removal necessary after a loss.
• Inflation, which can increase the cost of labour and materials.

What about Reconstruction Cost?

Reconstruction Cost, on the other hand, refers to the cost to replicate with equal quality and construction at today’s labour and material costs, construction standards, design and layout, and quality of workmanship.

Unlike replacement cost, reconstruction costs also include those site-specific and process-related factors listed above that you may experience when rebuilding.

The best way to improve the accuracy of your calculated reconstruction cost value is to have an appraisal done of the property, which will include, but is not limited to evaluating:

• Gross perimeter and floor area
• Heating and plumbing
• Construction class
• Roofing and exterior wall material

The more information available, the more accurate the calculation will be. With these details properly recorded, an appraisal provides the peace of mind that you will be properly protected should a loss occur. However, it’s important to note the reconstruction cost is not influenced by current market value.

What is Market Value?

Market Value is the amount a buyer would pay for your home, including the land, in its current condition and regardless of how much it would cost to rebuild it. Many factors are considered when determining the market value of a home:

• A desirable neighborhood (nearby amenities, school division, crime rates, etc.)
• The condition of the home (age, fixtures and finishes, plumbing and electrical, etc.)
• The property lot (size, scenery, etc.)

Many of these factors may have changed over the years, which could greatly impact the market value of your home.

How can appraisals benefit your insurance policy?

While your insurance may have been adequate for your previous building, or in previous years, as time goes by and you make changes to the building you may not be covered properly. If and when you do decide to make any changes, be sure to let your broker know, as this may also change the replacement cost of your home.

You can read our blog What You Should Know Before Starting DIYs here for more tips.

Red River Mutual and our broker partners want to help you protect what matters most, while also helping you understand how we determine the best possible insurance for you. We encourage you to check in with your broker annually to get an appraisal and determine how your insurance will best protect you for any upgrades or losses.