Homeowners Insurance Coverage Gap Calculator

The 80% rule is a coinsurance provision built into most standard homeowners policies that requires you to carry dwelling coverage equal to at least 80% of your home's replacement cost. If your coverage meets or exceeds 80%, claims are settled at full replacement cost. If you fall short, the policy drops you to actual cash value on every claim — which subtracts depreciation and can dramatically reduce your payout. The rule applies to every loss, not just total losses.

The most accurate way is to ask your insurance agent for a current replacement cost estimator (RCE) using tools like e2Value, 360Value, or Marshall & Swift. You can also hire an independent appraiser who specializes in insurance valuations. A rough estimate is square footage × local construction cost per square foot, but this ignores upgrades, architectural details, and code upgrade costs. In 2026, most U.S. markets are between $180 and $400 per square foot for standard construction, higher in California, Hawaii, and the Northeast.

No — and confusing the two is the single biggest mistake homeowners make when setting coverage. Market value includes the land, the neighborhood, and comparable sales data. Replacement cost is only what it would take to rebuild the physical structure from scratch at today's construction prices. In expensive markets, market value is usually higher than replacement cost; in rural or lower-cost areas, replacement cost can actually exceed market value. Insurance coverage should always be set based on replacement cost.

A coinsurance penalty is the reduction in your claim payout that occurs when you don't carry enough insurance to satisfy the policy's coinsurance clause. On commercial property policies, the penalty is calculated proportionally: (coverage carried ÷ coverage required) × loss = payout, before the deductible. On homeowners policies, the penalty works differently — the policy shifts from replacement cost to actual cash value for the entire loss, which subtracts depreciation from every damaged item.

On a total loss, the coinsurance formula usually becomes irrelevant — you simply receive your policy limit, which by definition is less than what it will cost to rebuild. The shortfall is the gap between your coverage limit and the actual rebuild cost. On a $500,000 home insured for $350,000, a total loss pays $350,000 and leaves you $150,000 short plus rising construction costs, code upgrades, and debris removal. Extended or guaranteed replacement cost endorsements are the primary tool to prevent this.

Three steps: (1) Get an accurate replacement cost estimate from your agent or an independent appraiser — not just your home's market value. (2) Make sure your dwelling coverage (Coverage A) is at least 80% of that replacement cost, ideally 100% or higher. (3) Add an extended replacement cost endorsement (usually 25-50% above Coverage A) or a guaranteed replacement cost endorsement, which eliminates the 80% rule entirely. Also enable inflation guard so your coverage auto-adjusts with construction costs each year.

The 80% rule is a policy provision, not a state law — so it applies wherever a policy containing that provision is issued, which is most of the U.S. Some states (California, Connecticut, Florida, Louisiana, among others) also have statutes that reinforce the requirement. A few carriers in a few states offer policies without coinsurance clauses, but these are rare. Check your policy's loss settlement section to confirm — the provision is usually explicit about the 80% threshold and what happens if you fall below it.