Guaranteed replacement cost insurance is a type of homeowners insurance that ensures your home can be fully rebuilt if it’s damaged or destroyed, regardless of the current market value or depreciation of your property.
Unlike standard policies, which only cover the cost of rebuilding up to your home’s insured value, guaranteed replacement cost insurance covers the total cost of rebuilding, even if it exceeds your policy limit.
Guaranteed Replacement cost insurance is especially valuable in areas where construction costs are unpredictable or if the value of your home has increased since you purchased the policy.
It provides peace of mind, knowing that you won’t be left with a financial gap if your home is completely lost due to events like a fire, storm, or natural disaster. This way, you can be sure that your home will be fully restored.
How Does Guaranteed Replacement Cost Insurance work
When you buy home insurance, you usually set a coverage limit based on how much it would cost to rebuild your house.
For example, if your coverage limit is $300,000 and your home is damaged by a disaster, your insurance would pay up to that amount to repair or rebuild it.
But if rebuilding costs more due to things like labor shortages or rising building costs, your policy might not cover the extra amount.
With guaranteed replacement cost insurance, your insurer will pay the full cost to rebuild your home, even if it exceeds your policy limit. So, if rebuilding costs $400,000 but your policy limit is $300,000, your insurance will cover the extra $100,000.
You only need to pay your deductible. This type of coverage is more expensive because the insurance company is covering all the extra costs, which is why it comes with higher premiums.
Other Types Of Coverage
Guaranteed replacement cost is the most complete coverage for your home, but it’s also the most expensive and not always available. So, what other options are there? Let’s look at the alternatives.
Replacement Cost
This is the standard coverage for your home and any permanent structures like a garage or fence. It pays to rebuild or repair up to the policy limit, but if rebuilding costs more than your coverage, you’ll have to pay the difference.
Extended Replacement Cost
This option gives you extra coverage, typically 10% to 25%, or sometimes up to 50%, above your policy’s limit. If rebuilding costs a little more than expected, the extra coverage can help.
However, it may not be enough during major disasters where there are shortages of materials and workers.
Companies That Offer Guaranteed Replacement Cost
Although availability can be limit based on your location, there are different insurers that offer this coverage. They include;
- Acuity
- AIG
- Amica
- Chubb
- Encompass
- Erie
- Farmers
- MetLife
- Plymouth Rock
- Travelers
- USAA
Who Should Purchase Guaranteed Replacement Cost Coverage
Guaranteed replacement cost insurance is a good choice if you want peace of mind knowing your home will be completely rebuilt after a disaster, no matter how much it costs.
It’s especially useful if you live in areas that often experience natural disasters, where rebuilding costs could be much higher than your home’s insured value due to increased demand for labor and materials.
However, if your home’s coverage has kept up with rising costs and inflation in your area, you might not need guaranteed replacement cost insurance.
How Much Does Guaranteed Replacement Cost?
The cost of guaranteed replacement cost coverage is based on the insurance company and where you live. However, it’s typically an expensive add-on to your home insurance policy.
It usually costs about 5% to 10% of your total annual premium. For example, if your home insurance costs $1,000 a year, adding guaranteed replacement cost coverage could increase your premium by $50 to $100 annually.
While it adds to the cost, it provides extra protection in case you need to rebuild your home.
Frequently Asked Questions
How Does Guaranteed Replacement Cost Differ From Replacement Cost Insurance?
While both cover the cost to replace or repair a property, Replacement Cost Insurance typically has a limit based on the policyholder’s coverage amount.
Guaranteed Replacement Cost does not have such limits and ensures complete coverage, taking into account rising construction costs and inflation.
What Types Of Properties Are Eligible For Guaranteed Replacement Cost Insurance?
This insurance is typically available for residential properties including single-family homes, condos, and sometimes certain types of commercial properties. Eligibility criteria can vary by insurer.
What Should I Do If My Property Value Increases?
It’s important to periodically review your policy and coverage limits with your insurance provider, especially if you make significant improvements to your property or the market increases. An annual review can help ensure you maintain appropriate coverage levels.
