Insurance Coverage Gap Calculator

How to Use the Insurance Coverage Gap Calculator

This calculator helps you estimate a potential insurance coverage gap if your property is damaged or destroyed. It compares your estimated replacement cost to your policy limit and then factors in your deductible to show a rough idea of what you might need to pay out of pocket.

What each input means

• Replacement Cost ($): Your best estimate of what it would cost to fully rebuild or repair the property today, using current labor and material prices. This is usually the rebuild cost, not the market value or purchase price.
• Policy Limit ($): The maximum dollar amount your insurance company will pay for covered damage to this property section (often called “Coverage A – Dwelling” on a homeowners policy). You can usually find this on your declarations page.
• Deductible ($): The amount you must pay first on a covered claim before your insurance coverage begins to pay. Enter the deductible that applies to this type of loss (for example, the all-perils deductible or a separate wind/hail deductible, depending on your policy).

After entering your numbers, the calculator estimates how much of a total loss might not be covered by insurance and could become your responsibility.

How the Coverage Gap Is Estimated

The tool focuses on a simple total loss scenario. It assumes that your loss amount equals the replacement cost you entered. It then compares that amount with your policy limit and subtracts the deductible. The high-level logic is:

Step 1 – Estimate the loss amount: assumed to be the full replacement cost you enter.

Step 2 – Apply your policy limit: the insurer will not pay more than your limit, even if the loss exceeds it.

Step 3 – Subtract your deductible: you pay the deductible before insurance pays its share.

The gap is the part of the loss that is not paid by insurance and is not simply your deductible. In simple terms:

Where the estimated insurance payout is limited by your policy maximum. Conceptually:

This approach provides a simplified look at how being underinsured (having a policy limit below the true replacement cost) can leave you exposed.

Interpreting Your Results

Once you calculate, you will typically see one of three general scenarios:

• No estimated coverage gap: In this case, your policy limit appears high enough to cover the estimated replacement cost (after the deductible). You would still owe the deductible, but the calculator does not detect an additional gap based on your inputs.
• Moderate estimated coverage gap: Your policy limit is below the estimated replacement cost, but not by a large margin. You may still face a meaningful but manageable out-of-pocket amount beyond the deductible.
• Large estimated coverage gap: Your policy limit is significantly lower than the estimated replacement cost. In a total loss, you could be responsible for a substantial portion of the rebuild cost, in addition to your deductible.

Remember that a positive gap means there is an estimated shortfall in coverage, while no gap (or a gap of $0) means that, under the tool’s assumptions, your limit appears sufficient for the amount you entered.

Worked Example

Consider this example of a homeowner trying to understand their exposure:

• Replacement Cost: $250,000
• Policy Limit: $200,000
• Deductible: $1,000

In a total loss scenario, the estimated cost to rebuild is $250,000. Your insurer will pay no more than the policy limit of $200,000 for covered damages. You are also responsible for the first $1,000 due to the deductible.

Conceptually, the difference between the replacement cost and the maximum insurance payout (limit) represents the potential coverage gap. With the numbers above, the gap is the amount of the rebuild cost that falls above your limit and would likely have to be funded by you (through savings, loans, or other means).

This example illustrates how being insured for less than the full replacement cost can leave you with a large unexpected bill at the worst possible time.

Replacement Cost vs. Policy Limit: Why the Gap Matters

Many property owners set their policy limit when they first buy a home or building and then forget about it. Over time, construction costs can increase because of inflation, labor shortages, or upgraded building codes. If you do not adjust your limit, you can gradually become underinsured.

Here is a high-level comparison of key concepts related to the gap:

When to Review Your Coverage

You may want to review your limits and use this calculator whenever:

• You complete a major renovation or addition that increases the size or quality of the property.
• Construction and labor costs rise sharply in your area.
• It has been several years since you last updated your policy limit.
• You change insurers or switch between different policy types (for example, from actual cash value to replacement cost coverage, or vice versa).

If the calculator suggests a large gap, consider discussing your situation with a licensed insurance professional. They can help you understand the details of your policy, including coinsurance clauses, extended replacement cost options, ordinance or law coverage, and other provisions that affect how much you would actually receive after a loss.

Assumptions and Limitations

This calculator is designed as a general educational tool. It does not attempt to model every feature of your policy. Key assumptions and limitations include:

• Total loss focus: The example and basic logic assume a severe or total loss. Partial losses, multiple deductibles, and sublimits are not modeled.
• No policy exclusions: The estimate assumes the damage is covered. Real policies exclude certain causes of loss (for example, flood, earth movement, wear and tear), which could reduce or eliminate payment regardless of your limit.
• Simplified payout calculation: Actual claim payments depend on specific policy language, adjuster assessments, depreciation (for actual cash value coverage), coinsurance penalties, and any special endorsements.
• Single property component: The tool treats your inputs as if they apply to a single coverage part, typically dwelling coverage. Other structures, personal property, and loss of use coverages have their own limits and rules.
• Estimates only: All outputs are approximate and for illustration. They are not a promise of coverage, quote, offer of insurance, or guarantee of any claim outcome.

Because of these limitations, you should treat the result as a starting point for a conversation with your insurer or agent, not as a final answer. A licensed professional can help you select coverage limits and deductibles that match your risk tolerance, budget, and property characteristics.

Disclaimer: This calculator and its explanations are for informational purposes only and do not constitute financial, legal, or insurance advice. For personalized recommendations and exact coverage details, review your policy documents and consult a qualified insurance professional.