What are my Options when it comes to Home Replacement Cost?

For homeowners, a common question asked regarding home insurance and home coverage options is ‘what are my options when it comes to home replacement cost?’

Simply put, when it comes to home replacement cost, there are two options: replacement cost and guaranteed replacement cost.

Replacement Cost and Guaranteed Replacement Cost

Both replacement cost and guaranteed replacement cost are coverages designed to put you in the same position you were in before experiencing a loss. Both types of replacement cost do not take into consideration depreciation; they simply repair or replace damage in the event of a loss. For example, if you experience damage to your 10-year-old shingles due to wind damage, both replacement cost and guaranteed replacement cost will pay to have your shingles repaired or replaced; they do not factor in that your existing shingles are 10-years-old and no longer hold the same value as new shingles, they simply replace the damaged shingles with new ones.

Coverage for Total or Partial Loss of Your Home

If you experience a total loss and your home has to be re-built from the ground up, both replacement and guaranteed replacement cost will rebuild your home. What’s the difference between replacement cost and guaranteed replacement cost?

Replacement cost insurance pays to repair or replace your home in the event of a loss; however, the repair or replacement is covered up to the limits of the replacement value, as stipulated on your home insurance policy. For example, if the replacement value of your home is stated to be $300,000, on your home insurance policy, and you experience a total loss, replacement cost insurance will pay to have your home rebuilt up to a maximum limit of $300,000.

Determine the Replacement Cost of Your Home

What if the calculated replacement cost is not enough to cover the full rebuild of the home?  This can be a large fear for any homeowner.  After all, you pay a lot to ensure your home is covered properly, the last thing you want to hear after experiencing the trauma of losing your home is that the rebuild cost has exceeded your policy limits and the excess rebuild cost over the limit stated within your homeowner’s insurance policy will not be covered. This is an unlikely event, but can happen, which is why calculating the replacement cost of your home correctly is so important.

Guaranteed Replacement Cost

If you’re still uneasy about calculating replacement costs, fear not, there is the option of guaranteed replacement cost coverage for homeowners to consider as well.

Guaranteed replacement cost is exactly as it sounds: it is a guarantee that your home will be replaced to its former state, prior to the loss, with no limitations. Guaranteed replacement cost is an insurance company’s promise to put a homeowner back in the same position they were in before a loss, regardless of the cost.

For example, if you experience a total loss and the stated replacement value of your home is $300,000, but due to unforeseen circumstances, the total cost to replace the home is closer to $450,000, your insurance company will pay for the full cost to replace the home.

That’s perfect! Why doesn’t everyone purchase this coverage? Of course, a promise such as this comes with a higher premium. A guaranteed replacement cost policy will cost more than a regular replacement cost policy that is subject to the limitations of the replacement value of the home.

It should also be noted that some insurance companies do not offer guaranteed replacement cost to homes over a certain age, and some insurance companies define guaranteed replacement cost differently. Some insurance companies’ guaranteed replacement cost means the full guarantee as outlined; however, others define guaranteed replacement cost as a guarantee that they will cover rebuild costs of a home over and above the stated replacement value of the home, up to a certain percentage, for example, 120 percent of the replacement cost, meaning you are still subject to limitations.

Calculate Your Home Replacement Cost

Douglas Cost Guide Inc. has made replacement cost calculations worry free. With over 30 years of valuation experience, Douglas Cost Guide has developed and honed the residential cost guide to help homeowners understand the factors considered when calculating replacement cost. Douglas Residential Cost Guide completes the calculation for you using Canadian data, market trends and costing. Utilizing Douglas Residential Cost Guide to calculate your home’s replacement cost can act as a check and balance, giving you a baseline for your home’s replacement cost to ensure your insurance company’s calculations are accurate.

Questions to Ask When Shopping for Home Insurance

It’s imperative when shopping for home insurance to ask questions.

  • How does your insurance company define guaranteed replacement cost?
  • Is guaranteed replacement cost available for your home?
  • What is the premium difference between guaranteed replacement cost and normal replacement cost coverage?
  • Of course, most importantly, what is your home’s replacement cost value?

Let Douglas Cost Guide Inc. help with the big questions so you can breathe easy.  Visit the Douglas Residential Cost Guide today.