Homeowners 80% replacement cost rule calculator
Homeowners policies pay full replacement cost on the house only when it is insured for at least 80% of what it would cost to rebuild. Enter the home's replacement cost, the dwelling limit and the loss to see which settlement applies and what the claim pays.
How the 80% rule works
- Find 80% of the home's replacement cost at the time of loss.
- If Coverage A is at least that amount, the claim is paid at full replacement cost of the damage, up to the limit, minus the deductible. (The insurer may pay actual cash value first and the rest when repairs are done.)
- If Coverage A is less, the insurer pays the larger of: the actual cash value of the damage, or (Coverage A ÷ 80% of replacement cost) × replacement cost of the damage. Then the deductible is subtracted.
Worked example
A home would cost $400,000 to rebuild but is insured for $280,000. Wind damage costs $30,000 to repair new, with $12,000 of depreciation. The deductible is $1,000.
- 80% of $400,000 = $320,000. The home is insured for less, so the rule bites.
- Actual cash value of the damage: $30,000 − $12,000 = $18,000
- Proportional replacement cost: ($280,000 ÷ $320,000) × $30,000 = $26,250
- The larger amount is $26,250; minus the deductible = $25,250
Had the home been insured for at least $320,000, the claim would have paid $29,000.
Frequently asked questions
What is the 80% rule in homeowners insurance?
Under the ISO HO-3 and similar forms, the insurer pays building losses at full replacement cost only if the dwelling limit (Coverage A) is at least 80% of the home's replacement cost at the time of loss. If it is lower, the insurer pays the larger of the actual cash value of the damage or a proportional share of the replacement cost.
Does the 80% rule apply to personal property?
No. The rule in the loss settlement condition applies to buildings under Coverage A and B. Personal property under Coverage C is settled at actual cash value unless a replacement cost endorsement is added.
Is the replacement cost of the home the same as its market value?
No. Replacement cost is what it would cost to rebuild the house with materials of like kind and quality, without the land. Market value includes the land and local demand, so it can be much higher or lower than replacement cost.
When is the deductible applied?
The HO-3 deductible applies to the total loss payable, so the calculator subtracts it after determining the settlement amount. The payment is also limited to the Coverage A limit.