Do I Need to Have Guaranteed Replacement Cost Coverage?

With so many types of homeowner’s policies and different coverage options available, it’s hard to determine which coverage option is best for your home, your family, and your needs.

To determine the best coverage choice for your home, it is common practice to examine what you’d want or need to happen in the event of a total loss. In the event of a loss, do you plan to take the money and walk away from your home and start fresh somewhere else? In some cases, couples of retirement age contemplate downsizing and aren’t interested in enduring the process of rebuilding their home: preferring instead to take a cash payout, downsize and move elsewhere. If this is the case, no, you do not need to have guaranteed replacement cost coverage.

If in the event of a loss, you would need to rebuild your home from the ground up, a replacement cost policy is absolutely the way to proceed. The question is, do you select replacement cost coverage or guaranteed replacement cost coverage?


Decide What Type of Coverage Is Right for You

Guaranteed replacement cost coverage is an added layer of protection that some insurance companies offer. A replacement cost policy is designed to put you in the same position you were in prior to the loss: rebuilding or replacing your home in the event of a loss, up to the replacement cost listed on your policy. For example, if your home’s listed replacement cost on your policy is $350,000, in the event of a total loss, your policy will pay to have your home repaired or replaced up to the cost of $350,000.

The $350,000 is in place to specifically replace the structure of your home; there are additional coverages and funds available for extra costs or damages that may be incurred. For example, personal contents coverage to replace the contents of your home is a separate line item on your policy and is in addition to the $350,000 set aside to rebuild the actual structure of the home.

Of course, in some cases, there are additional costs and expenses that can pop up during a rebuild. Things can run over budget, excavation might be more extensive than originally thought, etc. In cases such as these, a guaranteed replacement cost policy can provide peace of mind. Guaranteed replacement cost coverage guarantees that your home will be repaired or rebuilt to put you in the same position you were in prior to the loss, even if the cost to do so goes above and beyond your policy’s listed replacement cost.


Choosing Guaranteed Replacement Cost Coverage

Some companies do not offer guaranteed replacement cost coverage for homes built prior to a specific year, or their guaranteed replacement cost coverage states they will cover 150 percent of the replacement cost. If a guarantee is what you’re looking for, it’s best to ask your agent or broker if your home is eligible for guaranteed replacement cost and discuss what their guaranteed replacement cost coverage entails.

If you choose a guaranteed replacement cost coverage policy, if the cost to rebuild your home goes beyond your policy’s stated limit, your insurance company will cover the cost to put you back in the same position you were in prior to the loss, regardless of the cost. This is protection against inaccurate replacement cost calculations. Of course, given the additional risks associated with guaranteed replacement cost policies, these policies come with higher premiums and may not seem worth the additional monthly or yearly premiums required.


Calculate Your Home’s Replacement Cost using the Douglas Residential Cost Guide

When in doubt, it is best to take comfort in knowing that your home’s replacement cost has been accurately calculated. By utilizing The Douglas Residential Cost Guide you can confirm what your home’s replacement cost is, compare it to your existing policy, determine if your replacement cost should be adjusted, and decide if the additional premium for a guaranteed replacement policy is a cost your family should plan for.

Every policy, every home, and every family is different. Only you can answer the question ‘Do you need guaranteed replacement cost coverage’; however, armed with your home’s accurately calculated replacement cost amount, you’ll be able to make an educated decision as to what policy will best suit your needs and will keep your home and your family safe.