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A Reconstruction Cost Estimate (RCE) is a figure that insurance companies use to estimate the cost of rebuilding your home in the case it gets completely destroyed. What is a Reconstruction Cost Estimate (RCE)?

Before we get to RCE, we need to talk about your homeowners policy. The first component of your homeowners insurance coverage is Coverage A, or Dwelling Coverage. Dwelling coverage refers to the portion of your basic HO3 homeowners policy that covers your home’s physical structure.

This coverage protects the home you live in, plus any attached structures—an attached garage or deck, for example—if there’s physical damage from a wide variety of causes, aka open perils. 

When it comes to setting a Dwelling Coverage amount for your homeowners policy, you don’t want to choose the purchase price or current market value of your home. Your reconstruction costs should be the amount that it’d take to rebuild your home (as it was before it needed to be rebuilt – no upgrades!) That $ amount is your Reconstruction Cost Estimate, or RCE. 

The amount you choose for Dwelling Coverage, after all, is what your insurance company will be reimbursing you if you have to rebuild your home. By making sure your Dwelling Coverage amount is equal to your Reconstruction Cost Estimate, you won’t be left paying the difference out-of-pocket.

NOTE: For our purposes, the RCE should only take into account your house and any attached structures; you wouldn’t count the cost to repair other structures, such as a shed or pool cabin.

Isn’t the Reconstruction Cost Estimate the same as an appraisal?

Nope, the RCE is not the same as a home appraisal. A home appraisal calculates the current market value of your home and takes into consideration things like the condition of the home, property sales nearby, special features of the surrounding neighborhood, and other factors.

How is the RCE calculated?

When an insurance company calculates your home’s RCE, they look at a long list of features and data points to determine how much it would cost to rebuild your home. That list includes, but isn’t limited to, some of the following:

  • Building materials
  • Square footage
  • Year built 
  • Labor costs
  • Property fees
  • Number of bathrooms
  • Number of stories

Why is your RCE important?

Knowing your RCE will help you set the right Dwelling Coverage limits on your homeowner’s insurance, which will help you in the worst case scenario that you do need to rebuild your home from scratch. 

For example, let’s say your home has an RCE of $240,000 but you selected a limit of $200,000 in Coverage A on your homeowner’s insurance. If your home is destroyed after a covered peril like a windstorm or fire, you’d have to foot the remaining $40,000 bill yourself. To avoid that scenario, simply ensure that the Dwelling Coverage you choose is equal to or greater than your RCE.