Does homeowners insurance cover a total loss to your house?

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Natural disasters such as wildfires and hurricanes are becoming ever more prominent. Coupled with storms, lightning and other disasters that can severely damage a home, many homeowners are faced with the responsibility of buying a new home or rebuilding following a catastrophic event.

If your home was damaged by a covered peril and you choose to rebuild, the costs will be covered by homeowners insurance. Your policy will pay up to the amount of homeowners insurance coverage you have.

When is a home considered a total loss?

A home is considered a total loss if its destruction is so severe that it would cost more than the home’s value to repair the damages. For example, if your home is valued at $200,000 but it would cost $350,000 to repair the damage, it is a total loss. If the home is too damaged to repair within its valuation, then you will need to buy a new home or rebuild it.

If you buy a new home, it is not covered by homeowners insurance. But if you rebuild, then your homeowners insurance will cover the costs — up to your coverage limit.

How to rebuild your home after total loss using homeowners insurance coverage

To rebuild your home after a total loss, such as a fire, you’ll need to start by filing a claim with your homeowners insurance company. An insurance adjuster will then evaluate the damage and determine the cost of rebuilding your home.

Actual cash value vs. replacement cost coverage

There are two types of homeowners insurance policies. Actual cost value and replacement cost.

Most homeowners insurance policies are replacement cost. This is when your homeowners insurance policy will then pay for rebuilding costs up to the replacement cost listed in your policy, or how much money it will take to rebuild the house. This value equals the original value of your home. However, most homeowners insurance policies have limits on the replacement cost, and if rebuilding your home ends up costing more, you’ll have to pay the difference out of pocket. So, if you have $250,000 in coverage but your home costs $350,000 to build, you will be responsible for $100,000 in reconstruction costs.

Some policies offer actual cash value coverage rather than replacement cost coverage. When this is the case, the homeowners insurance company calculates how much your home has depreciated over time, and deducts it from the payout. While an actual cash value policy is cheaper than a replacement cost policy, it provides far less coverage.

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How much it costs to rebuild your home

The actual cost to rebuild your home is often higher than the replacement cost listed in many policies because of inflation, the cost of temporary housing and the cost of labor. You’ll also need to hire a crew to clean up debris and pay for raw materials. Other factors that will influence the cost of rebuilding your cost include:

The square footage of your home
The age of your home
The type of foundation and roof your house requires
The appliances your house needs

How to get homeowners insurance to pay out for the total loss of your home

While homeowners insurance only pays up to the policy’s replacement costs, there is a way to get the reconstruction of your home fully covered: a guaranteed replacement cost endorsement.

Homeowners insurance will cover the total cost of rebuilding your home if you add on a guaranteed replacement cost endorsement to your homeowners insurance policy. This endorsement makes sure that your homeowners insurance policy pays out the full costs of replacing your home, even if it is higher than the replacement cost listed in your policy.

The guaranteed replacement cost endorsement is additional coverage in your policy, and is not automatically included. You’ll need to purchase this endorsement when you are purchasing a homeowners insurance policy and pay extra for the supplemental coverage. For homeowners in disaster-prone areas, a guaranteed replacement cost endorsement is a valuable addition to a homeowners insurance policy.

If your home is severely damaged, homeowners insurance will cover the costs if you decide to rebuild it. But because a homeowners insurance policy will only cover up to your coverage limit, a guaranteed replacement cost endorsement is a valuable add-on to your policy. This endorsement will ensure the costs of rebuilding your home are covered even if they are beyond your policy’s coverage amount.

Frequently asked questions

How do I calculate the replacement cost of my home?

The replacement cost of your home is equal to the amount of dwelling coverage you have in your policy.

Will my homeowners insurance cover all the costs of rebuilding my home?

Not necessarily. Your homeowners insurance will cover the costs of rebuilding your home up to the amount of coverage you have. In order for the insurance company to cover all the costs, you will need to have a guaranteed replacement cost endorsement.

Nupur Gambhir

Managing Editor

Nupur Gambhir is a content editor and licensed life, health, and disability insurance expert. She has extensive experience bringing brands to life and has built award-nominated campaigns for travel and tech. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service.