What is Guaranteed Replacement Cost?

Your homeowner’s insurance protects your home against common risks like fire, wind, and falling objects, such as tree limbs. But does your policy provide enough coverage to fully rebuild your home? 

With guaranteed replacement cost coverage, there is no need to wonder. Guaranteed replacement cost, an option offered with some policies, insures your home for its full rebuild value even if your policy specifies a lower amount.

When you buy insurance for your home, you choose a coverage amount for your home itself. These days, the insurer suggests a coverage amount calculated by sophisticated software that accounts for the cost of materials and labor. Based on your home’s square footage and special features, the cost of rebuilding can vary, but software solves much of the guesswork. 

Still, it can be possible that the insured value for your home is lower than the cost of rebuilding. One common cause is that the cost of rebuilding your home has changed while your coverage amount stayed frozen in time. Be sure to review your coverage once every 12 to 18 months to avoid being under-insured and to address any other coverage needs that may have changed.

Rebuild costs can creep up slowly, but costs can also rise rapidly. For example, after a widespread weather event like a storm, local or regional costs for lumber and other materials can jump quickly due to increased demand. Labor costs can skyrocket as well. Because the cost of materials and labor are key components in rebuild costs, a sudden change in one or both of these elements could leave you under-insured.

A standard home insurance policy insures your home for the amount specified on the policy, less the deductible. The policy deductible is the amount you pay in a claim. 

As an example, imagine you have a home insured for $300,000. You also have a $1,000 deductible. If the house is destroyed due to a covered risk, the insurer will pay up to $299,000 to rebuild the home. 

What if the true rebuild cost of your home is $325,000 because of a sudden spike in the cost of lumber and labor? With guaranteed replacement cost coverage, your policy can make up the $25,000 difference. The deductible still applies, but you can take comfort in knowing your home is fully insured, even if rebuilding costs change.

Reach out to your agent or broker

To learn more about guaranteed replacement cost coverage and other policy options, reach out to your agent or broker to schedule a policy review. Life changes quickly. A review offers a perfect way to be certain your coverage meets your current needs.