Reconstruction Cost Estimate (RCE)

If your home was destroyed tomorrow, would your insurance actually cover the full cost to rebuild it?

That answer depends on one number: your Reconstruction Cost Estimate, or RCE. It’s the figure that tells you, and your insurance company what it would really cost to rebuild your home from the ground up. Get it right, and you’re covered. Get it wrong, and you could be left paying the difference yourself.

Here’s everything you need to know.

What is a Reconstruction Cost Estimate (RCE)?

Before we get into RCE, we need to talk about your homeowners policy. The foundation of your homeowners coverage is Coverage A, also called Dwelling Coverage. It’s the part of your basic HO3 policy that covers your home’s physical structure: the home you live in, plus any attached structures like a garage or deck, against physical damage from a wide variety of causes (open perils).

When you’re setting your Dwelling Coverage amount, don’t go by what you paid for the home or what it’s worth on the market today. Those numbers don’t reflect what it’d actually cost to rebuild. Your RCE is the dollar amount it would take to reconstruct your home exactly as it was: no upgrades, just like-for-like.

That number matters because it’s what your insurance company reimburses you if your home needs to be rebuilt. If your Coverage A matches your RCE, you’re covered. If it falls short, you’re covering the gap yourself.

Note: Your RCE only accounts for your home and any attached structures. Other structures like a shed or pool cabin aren’t included here; those fall under a different coverage category.

Is the Reconstruction Cost Estimate the same as an appraisal?

No. A home appraisal calculates your home’s current market value, factoring in things like nearby sales, neighborhood features, and the condition of the property. Your RCE is focused on one thing only: what it would cost to physically rebuild the structure using today’s labor and materials. Those two numbers can look very different, and that’s completely normal.

How is the RCE calculated?

When an insurance company calculates your RCE, they look at a detailed list of features and data points about your home. Think of it like a recipe, every ingredient affects the final number. Here’s what goes into it:

• Building materials:What your home is actually made of matters a lot. A house built with high-end hardwood floors and custom stonework costs more to rebuild than one with standard finishes. The type of materials used in your walls, roof, floors, and fixtures all factor into the estimate.
• Square footage: Simply put – more space means more materials and more labor. The larger your home, the more it costs to rebuild it. Square footage is one of the most straightforward inputs in the RCE calculation.
• Year built: Older homes can be more expensive to reconstruct than you’d expect. Why? Because they often feature materials or building techniques that are harder to source or replicate today – think ornate moldings, plaster walls, or older tile work. Newer homes tend to use more standardized materials, which can be easier (and cheaper) to replace.
• Labor costs: Skilled labor isn’t cheap, and the cost varies depending on where you live and what kind of work is involved. Specialized trades like electricians, plumbers, and roofers – command higher rates, and those rates shift over time. Your RCE reflects the current cost of labor in your area.
• Property fees: Rebuilding a home isn’t just about bricks and workers. There are permits to pull, inspections to pass, and local fees to pay. These costs get factored in because they’re a real part of what it takes to get a rebuilt home across the finish line.
• Number of bathrooms: Bathrooms are some of the most expensive rooms in a home to build. Plumbing, tiling, fixtures, and waterproofing all add up fast. The more bathrooms your home has, the higher your RCE is likely to be.
• Number of stories: A multi-story home requires more structural work, more materials, and more complex labor than a single-story home of the same square footage. The number of floors in your home plays a real role in what it’d cost to rebuild.

Let’s look at how that all adds up

Say you own a 1,800 sq ft two-story home built in 1968. It has three bedrooms, two bathrooms, original hardwood floors, and plaster walls throughout.

Because of its age, some of those original materials are hard to source today. The plaster walls alone require a specialist to replicate properly. Add in two floors of structural work, current local labor rates, and the permits required to rebuild in your area, and the RCE comes out to $320,000.

Now say your neighbor has a newer single-story home, similar in size, but built in 2012 with standard drywall, vinyl flooring, and one bathroom. Their RCE? Closer to $210,000.

Same neighborhood. Very different numbers. That’s why RCE is calculated for your specific home, not just based on where you live or what you paid for it.

Why is your RCE important?

Getting your RCE right helps you set the right Dwelling Coverage limit, which is what protects you in the worst-case scenario.

Here’s a quick example: say your home has an RCE of $240,000, but you only set your Coverage A at $200,000. Your home is destroyed by a windstorm. You’re now on the hook for $40,000 out of pocket. To avoid that, make sure your Dwelling Coverage is equal to or greater than your RCE.

Here’s another way to look at it: say you have $300,000 of Coverage A. A wildfire destroys your home, and it costs $290,000 to reconstruct it. You’re in good shape. But if reconstruction costs have climbed and your home now costs $350,000 to rebuild? You’d be covering that $50,000 gap yourself.

Why are reconstruction costs rising?

Reconstruction costs have been climbing for a while, and it’s worth understanding why. Your home’s RCE today could be meaningfully higher than it was just a few years ago. Here are the three main drivers:

1. Labor rates are up

Construction workers are commanding higher wages, and that’s not a bad thing. But it has a real impact on rebuild costs. Labor is one of the biggest line items in any reconstruction job, so when rates go up across the board (especially for specialized trades like plumbing), your home costs more to rebuild.

2. The cost of materials has climbed

The materials used to rebuild your home, including lumber, steel, and concrete, have all gotten more expensive. Lumber prices in particular have seen dramatic swings in recent years, driven by supply chain disruptions and surges in demand. Even when prices stabilize, they rarely snap back to where they started.

3. Tariffs and trade pressures

A tariff is a tax on imports. Since 2018, the U.S. has imposed higher tariffs on steel, aluminum, and lumber from several countries. That adds cost to imported materials, creates volatility in pricing, and causes shipping and processing delays at ports. All of it trickles down to the consumer, meaning higher rebuild costs for you.

What should you do?

It’s unlikely that reconstruction costs will suddenly revert to what they were a handful of years ago.

Every year, Lemonade reviews and re-estimates the RCE for your property. If it’s gone up, we’ll reach out and let you know. From there, you’ll want to revisit your Coverage A to make sure it reflects your home’s updated reconstruction costs. Just open the Lemonade app to pull up your policy details and make any changes.

Worth knowing: You can also add Extended Reconstruction Cost coverage to your policy as a buffer. It extends your Dwelling Coverage limit by 25% or 50% for cases where rebuild costs end up higher than your RCE. It’s a smart option given how much costs have shifted in recent years.

Before we go…

Insurance isn’t the most exciting topic, we get it. But your RCE is one of those numbers that’s really worth getting right. Too low, and you could be stuck covering thousands of dollars out of pocket at the worst possible moment. Too high, and you’re paying more in premiums than you need to.

The good news? You don’t have to figure it out alone. Lemonade reviews your RCE every year and will flag any changes to you directly. If something shifts, just open the app and update your coverage. Simple as that.

And if you ever feel like you want an extra cushion, Extended Reconstruction Cost coverage is there for exactly that reason.

You’ve got this, and we’ve got you.

Reconstruction Cost Estimate FAQs

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A few quick words, because we <3 our lawyers: This post is general in nature, and any statement in it doesn’t alter the terms, conditions, exclusions, or limitations of the policies issued, which differ according to your state of residence. You’re encouraged to discuss your specific circumstances with your own professional advisors. The purpose of this post is merely to provide you with info and insights you can use to make such discussions more productive! Naturally, all comments by, or references to, third parties represent their own views, and Lemonade assumes no responsibility for them. Coverage may not be available in all states. Please note that statements about coverages, policy management, claims processes, Giveback, and customer support apply to policies underwritten by Lemonade Insurance Company or Metromile Insurance Company, a Lemonade company, sold by Lemonade Insurance Agency, LLC.  The statements do not apply to policies underwritten by other carriers.