Selecting the right coverage limit for your home begins with determining its replacement cost. Replacement cost is an insurance-specific term, different from other property valuation. It considers the structure of your house and anything attached to it like a garage, deck or porch. Market value, assessed value, actual cash value, purchase price and mortgage balance have their own unique meanings and applications.

Homeowners insurance is based on replacement cost, which is the amount to rebuild the entire structure from the ground up using materials of like kind and quality. Replacement cost considers factors like square feet, exterior wall construction (brick, stone, siding), interior building materials like flooring (hardwood, custom flooring, carpet), cabinetry, fireplaces, counter top materials, lighting fixtures, roofing (asbestos, steel,shake, tile), room count and special features (attached garage, deck, porch). Ask your local homeowners insurance agent or company representative for assistance.

It is best to insure your house for its full replacement cost. Be familiar with your policy's co-insurance requirement before requesting a limit below this amount. Co-insurance requires the home to be insured for a specific percent of its replacement cost, typically eighty percent. Not having the right coverage limit can result in a claim settlement far less than the cost to restore damage.