When you first buy a home, there are WOW factors that make a house valuable to you. Those hardwood floors, great school districts, and huge backyards that make you sign on that dotted line.

Insurance companies want to protect your investment, but their criteria for value may be different from yours. Many factors go into determining the cost to insure a home. The weight of each factor can vary from company to company, but the thread that ties most insurance companies together when considering value is the replacement cost of the home.

Replacement Cost Versus Real Estate Valuation

The replacement cost does not consider the price of the land, rather an algorithm measures the cost of materials and labor it will take to rebuild the home to the specs at the moment before a loss occurs. This value of the primary structure is then used to determine how much a company will cover for detached structures, contents, and additional living expenses.

Read: How Much Homeowner's Insurance Do I Need?

Factors That Determine the Value of Your Home

It may seem that your broker or agent is bombarding you with a long list of question about your home for no reason, but each of the following specs affects the cost to rebuild your home:

  • Home Type

Detached structure, mobile home, or townhouse?

  • Year the house was built

The age of the home will determine if certain upgrades will need to be made during the rebuild—your house may have had aluminum now, but that isn’t up to code today.

  • Square Footage

The larger the house, the more expensive it is to rebuild.

  • Finished or Unfinished Basement

If your basement is finished, the rebuild cost factors in the labor and material to carpet and drywall the basement again

  • Attached or Detached Garage

Attached garages are calculated as a part of the rebuild cost of the house, but detached structures are valued separately as a percentage of the primary structure’s rebuild cost.

  • Number of Stories

A simple bungalow with an unfinished basement is less complicated and less expensive to rebuild than, for example, a tri-level split over an attached garage.

Read: Breaking Down Your Homeowner's Insurance Policy, From Coverage A to Coverage E

  • Number of Bathrooms

How many half or full bathrooms are in your home? Any bathrooms in the basement?

  • Roof Type

A metal roof with a life-proof warranty may be more difficult and costly to replace than a regular shingled roof.

  • Exterior Wall Type

If your home is the log cabin of your dreams, the cost to ship in the lumber will be higher compared to contemporary vinyl siding.

  • The Shape of the House

Square and rectangle-shaped houses are most common and the least expensive to rebuild. L-shaped or other irregular shapes are more costly to build. Often, contemporary homes have custom cutouts and window boxes that may affect the cost to rebuild.

  • Detached Structures

For example, garages, sheds, gazebos, and greenhouses. These are calculated as a separate value than the primary dwelling rebuild cost, but it’s important to mention them as you would likely want them replaced in the event of a loss.

  • Postal Code Region

Where you live determines the classification of the area. Remote, rural, city and costal resort towns all have different costs determined by how easy or difficult it is to find and transport materials to rebuild the house.

For example, if you lived in a very remote area that was only accessible in the summer and did not have any construction companies in the area, the cost to rebuild would be affected by having to ship the material and get the workers out to your property to rebuild the house.

If you are unsure of this information, your real estate agent should have some insight. You can also have the home inspected—this process should also verify the plumbing, electrical, and heating information that your broker or agent may also ask you.

How does the Replacement Cost affect your insurance premiums?

All of this information is put into a cost evaluation system that determines the rebuild or replacement cost. The evaluator algorithm that each company uses varies, so if you are shopping around, note what the agent reports as the cost to rebuild the house.

The higher the cost to rebuild the house, the more the insurance premium will be.

However, you never want to lie about the specs of your home just to save a few dollars on your yearly insurance premiums. In the case of a total loss, you need the value of the house to be high enough to cover the mortgage—you wouldn't want to get stuck in a situation where you're stuck paying out your mortgage on a home you just lost.

Read: How Insurance Companies Calculate Your Home Insurance Premiums

You also want to make sure that your house is rebuilt to the same quality that it was before the loss. If you love your double-car garage and sweet finished basement now, so you'll want it back after a loss as well.

Most companies offer guaranteed replacement cost on the home. That means they do not take depreciation of the home into account when determining how much they will pay out in the event of a claim. The qualification for replacement cost varies from company to company and is usually determined by the type and age of the home.

If you feel that the replacement cost is not accurate after your broker or agent has collected this information, you can also get a home evaluation done by an independent third party. The value that this third-party evaluator comes up with can be presented to the insurance company to make sure you’re fully compensated in the event of a claim.

Insurance is about protecting what is most important to you, so it’s important to know these specs and have them on hand when you’re talking to your broker or agent. Buying property is one of the most expensive purchases of your life, so insuring it at the proper value means protecting your financial future.