What is guaranteed replacement cost?

Guaranteed replacement cost is a type of coverage enhancement that offers the highest level of coverage — it guarantees a full home rebuild after a total loss, regardless of the cost.

Pat Howard 1600


Pat Howard

Pat Howard

Property and Casualty Insurance Expert

Pat Howard is a senior editor at Policygenius specializing in property and casualty insurance. His work has been featured on Property Casualty 360, Fatherly, MarketWatch, and more.

Published June 23, 2020|2 min read

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In the event your home is destroyed, you should have enough homeowners insurance to rebuild the house back to the way it was prior to the catastrophe. The best way to insure your home against the most expensive disasters is to get a policy with guaranteed replacement cost.

Guaranteed replacement cost is a type of dwelling coverage enhancement offered by some homeowners insurance companies. If your home is destroyed and you have guaranteed replacement cost, your policy will pay out the full reconstruction value of the home without factoring depreciation or coverage amount maximums into your claim settlement.

Guaranteed replacement cost is suggested for homes in high risk areas where construction and labor costs are known to skyrocket in the wake of a natural disaster. If you have a policy with guaranteed replacement cost, you don’t have to worry about being underinsured — you’re fully covered regardless of how much the rebuild costs.

Key Takeaways

  • Guaranteed replacement cost is a type of dwelling coverage enhancement you can add to your policy

  • If your home is destroyed in a disaster, this policy will pay whatever it costs to rebuild your house, regardless of your coverage limits

  • This type of coverage is generally an expensive policy add-on, especially in disaster-prone areas

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How does guaranteed replacement cost work?

A standard homeowners insurance policy insures your home at its replacement cost, meaning if your house incurs a loss and you file a claim, depreciation won’t be factored into the claim payout. But a replacement cost policy isn’t perfect: Your policy still has a specific coverage limit, and if you or your insurer underestimates your home’s replacement cost, you could be left severely underinsured.

With guaranteed replacement cost, you don’t have to worry about being underinsured because there is no coverage limit — your company is agreeing to fully reimburse you regardless of the rebuild amount.

For example, if you have a replacement cost policy and your home’s rebuild value is $400,000, then you’d want it insured for $400,000. Under the terms of a standard replacement cost policy, you’re entitled to that amount (minus your deductible) in the event you lose your home due to a covered loss. But what if you lose your home in a wildfire that destroys thousands of other properties and your home’s rebuild cost jumps to $500,000 because of the high demand for materials and labor? You’d have to pay $100,000 out of pocket to construct your home back to the way it was prior to calamity. With guaranteed replacement cost, you don’t have to worry about footing the bill for any unexpected spikes in reconstruction costs, you’ll get a full insurance payout anyway.

Who offers guaranteed replacement cost?

Guaranteed replacement cost is offered by several insurance companies around the U.S., including Chubb, Erie, MetLife, and Travelers, although keep in mind that availability of this coverage enhancement varies from state to state.

A much more common dwelling coverage endorsement is extended replacement cost coverage, which increases your policy limit an additional 25% or 50% in the event that rebuild costs exceed your coverage maximum.

How much is guaranteed replacement cost?

Adding guaranteed replacement cost to your policy is going to vary in price from company to company and location to location. If you live in a high risk area, your insurance company will likely charge you way more for this coverage add-on.

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