Insurance industry research shows a significant percentage of U.S. homeowners do not have adequate insurance coverage to rebuild their homes should disaster strike. There are a number of reasons for this, such as changing property values, rising construction costs, unreported improvements and the growing trend of in-home businesses.

As an American Family customer, it's important to understand the cost to rebuild your home, sometimes called its replacement cost, and how that figure can impact you. If your home is severely damaged or destroyed, the last thing you want to worry about is whether you can afford to rebuild it.

Following is some information explaining the importance of an accurate replacement cost figure and why it can be more costly to rebuild a home than construct a new one. There's also a checklist to go through to help you determine whether you have adequate coverage.

Taking an inventory of your possessions can help assure that you won’t forget when it really matters. Use our Personal Property Inventory (PDF*) worksheet to determine the value of your belongings.

What is Replacement Cost and How does it Affect Me?

Your home's replacement cost is an estimate of the amount of money it would take to rebuild your home in the event of a total loss. It's extremely important the dwelling coverage figure listed in your Homeowners, Farm/Ranch or Businessowners policy is an amount that will cover the costs of rebuilding your home following a catastrophe. Protecting yourself from such a disaster is the main reason you buy property insurance in the first place.

Many homeowners incorrectly assume if they insure their home for its estimated market value, assessed value or cost to construct new, they'll have adequate coverage if their home is destroyed. But replacement cost is not the same as these values. Other homeowners may have initially insured their home accurately, but then forgotten to notify their agent when they added on to the home or made significant improvements - and such changes often affect a home's replacement cost.

The bottom line is you want to be sure your insurance policy will provide the necessary coverage, should disaster strike.

Why is it so Expensive to Rebuild?

Many people are surprised to learn it's often more costly to rebuild a home that's been destroyed than to construct a completely new one. Here's why this is often the case.

• Site Access - Rebuilding a damaged or destroyed home amid existing structures often means limited work site access for large equipment due to trees, fences, sheds, etc. If access is impossible, costlier hand labor may be needed to perform certain jobs.
• Site Preparation - A damaged structure may need to be demolished. At the very least, debris from the damage needs to be collected and removed from the site before rebuilding can begin. New construction doesn't need such site preparation.
• Customer Service - Contractors who specialize in reconstruction often hire employees more skilled in customer service, since they'll be working with customers who just incurred a tremendous - and possibly tragic - loss. These employees are typically paid higher wages.
• Economies of Scale - Contractors who build several structures at one time gain significant volume discounts from material suppliers and skilled workers. Similarly, skilled workers such as plumbers and electricians charge contractors less money if they will be working on several dwellings at once. When it's a one-shot deal, these discounts are lost.
• Construction Method - If only the lower portion of a structure is salvageable, repair or reconstruction often must begin at the top and move to the bottom - a costlier and more time-consuming construction method than the typical bottom-to-top.
• Custom Features and Materials - Older homes in particular may have custom features and materials that are expensive, if not impossible, to duplicate or acquire.
• Inflation Rate - The cost of building materials often increases at a higher rate than other products, and significantly faster than the general rate of inflation.
• Supply and Demand - Following a natural disaster that destroys many structures, local construction and building costs typically rise in response to the unexpected increase in demand.
• Property Protection - Any remaining property and personal belongings on the site must be safeguarded against further damage and vandalism. This may involve placing some personal property items in temporary storage.

If you have questions, contact your American Family Insurance agent and set up an appointment to review your homeowners coverage. No one likes to contemplate the possibility of their home being destroyed, but if the worst ever happened it could be the most valuable phone call you'll ever make.

These recommendations were developed using generally accepted safety standards. Compliance with these recommendations is not a guarantee that you will be in conformance with any building code, federal, state or local regulation regarding safety or fire. Compliance with these recommendations does not ensure the absolute safety of your occupation, business or residence. It is the property owner’s duty to warn any tenants or occupants of the property of any safety hazards that may exist.