What is Extended Replacement Cost or Guaranteed Replacement Cost Coverage?

The increased demand for new construction and renovation projects, combined with the rising costs of construction due to material and labor shortages, has led to hardships in locating qualified contractors who are available to take on new work. When a homeowner purchases an insurance policy with their agent or insurance company, they rely on these professionals to properly insure their home and personal property in case of a disaster from fire, flood, or storm damage.

Within the construction and insurance industry, reconstruction costs depend on the location, size of home, type of finishes (custom or standard builder’s grade), distance to building supply stores (local hardware, Home Depot, Lowes, showrooms), and availability of contractors and design professionals.

What happens if your building coverage limits are $500k, but your estimate for damages is $750k? This is one of the most frequently asked questions, especially when a homeowner experiences a severe property loss or “total loss”. As a public adjusting firm that has handled over $100 million in property damage claims, United Public Adjuster’s first priority is to review your entire insurance policy to see what coverages, endorsements, limitations, and exclusions you may have. Some insurance policies contain Extended Replacement Cost or Guaranteed Replacement Cost Coverage, but how does it apply to your claim for damages?

Guaranteed Replacement Cost Coverage means the insurance company will pay the full costs to rebuild or repair your home even if the costs exceeds your stated building limit within your declaration pages. Of course, within any insurance policy, you have to read and understand how the additional monies is released. We have seen policy language that states that these additional monies will only be released if you repair or rebuild within a certain period of time, maintained at least the amount of dwelling coverage previously agreed including any adjustments based on assessments performed by your insurance company prior to the loss, and as long as you repair or rebuild your home at the same location.

For homeowners who don’t want to rebuild at the same location, can you get the additional insurance funds to rebuild elsewhere? Some policies state the Guaranteed Replacement Cost additional monies will be released if you rebuild at a different location if the land is declared unusable by a civil authority. In addition, every state may have additional guidelines, such as California, which addresses the replacement of these structures at a different location within CA. Ins. Code 2051.5(c):

“(c) In the event of a total loss of the insured structure, no policy issued or delivered in this state may contain a provision that limits or denies payment of the replacement cost in the event the insured decides to rebuild or replace the property at a location other than the insured premises. However, the measure of indemnity shall be based upon the replacement cost of the insured property and shall not be based upon the cost to repair, rebuild, or replace at a location other than the insured premises.”

Another benefit about Guaranteed Replacement Cost Coverage is that some insurance policies state the personal property limit will increase based on the same percentage of the increase to the building limits.

Separate from “Guaranteed Replacement Cost” which has no limits, we often see homeowner policies that have “Extended Replacement Cost” coverage which provides additional monies to rebuild even after the policy limit is exhausted, but there is typically a capped amount. The capped amount can vary from 10%, 25%, 50%, and even “unlimited” which is equal to “Guaranteed Replacement Cost”.

Considering the stress and uncertainty after a fire loss, having a licensed public adjuster like United Public Adjusters & Appraisers, Inc. to protect your best interests and guide you through the insurance claims process will save you both time and money.

Our trained staff of licensed public adjusters include both construction cost estimators and personal property inventory experts who solely represent policyholders, NOT the insurance company. To ensure an expedited, fair and maximum claim settlement for every dollar you are entitled to, we can be reached at 1-800-718-5677 (LOSS).