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Homeowners insurance will help you repair or replace parts of your home (or your entire home) and valuable items inside it if a covered event causes damage.
You can choose from different levels of replacement coverage for your home — each affects how much your insurer will pay out when you file a claim. Guaranteed replacement cost provides the highest level of coverage when it comes to homeowners insurance, which can bring you peace of mind.
Here’s what you need to know about guaranteed replacement cost:
- What is guaranteed replacement cost?
- How does guaranteed replacement cost work?
- How does guaranteed replacement cost coverage affect your deductible?
- Guaranteed replacement cost vs. other coverages
- When to consider guaranteed replacement cost insurance
What is guaranteed replacement cost?
Guaranteed replacement cost is an endorsement for a homeowners insurance policy. It provides coverage for the full cost of replacing your home, even if the amount exceeds your policy limits. This coverage is an extension of standard replacement cost insurance, which will cover the materials to rebuild your home up to a specified limit.
Labor and construction costs rise with inflation and tend to rise after a natural disaster strikes, when many homeowners in the area file claims. Guaranteed replacement cost coverage comes in handy in these situations, since it covers the cost of labor and materials to rebuild your home no matter what.
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How does guaranteed replacement cost work?
There’s no coverage limit with guaranteed replacement cost. It’ll provide you with a payout to replace your home with similar materials, without taking depreciation into account. After an insurer approves your claim, it’ll pay to repair or restore your home to its original condition..
This type of coverage can vary by insurer, so it’s always important to review your policy to find out if it’s subject to any limitations or exclusions.
Check Out: Homeowners Insurance Deductible: What You Need to Know
How does guaranteed replacement cost coverage affect your deductible?
Since guaranteed replacement cost insurance offers more expansive coverage, it’s a more expensive addition to your homeowners insurance premium. The cost for coverage varies by insurer and also by location, and some states don’t offer it. Deductibles also vary by insurer, but you’ll likely have the same deductible options for guaranteed replacement cost that you have for other replacement coverages.
Guaranteed replacement cost vs. other coverages
You have multiple replacement cost options for your homeowners insurance. Here are some of the key differences between them and what you can expect with other levels of coverage:
- Actual cash value pays a reimbursement based on your home’s current worth (not the cost to rebuild the home). Insurers take the cost to buy your property today and subtract depreciation from that amount.
- With replacement cost, your policy pays the amount to repair or replace your home with similar materials, without deducting depreciation. Unlike guaranteed replacement cost, standard replacement cost has a limit.
- Extended replacement cost is another option that offers a higher level of protection. It can pay as much as 20% to 25% more than your policy limit to help account for construction and building material price increases.
- Market value refers to the amount your home is currently worth, including the value of the land. Depending on different factors, a home’s replacement cost could be higher or lower than its market value. If your home’s value is lower than its replacement cost, market value can be risky, since it won’t cover all your costs if you need to rebuild.
Guaranteed replacement cost is the only option that’ll pay whatever it costs to rebuild your home if a covered peril damages it.
|Coverage Type||Coverage Limit||Deducts for Depreciation?|
|Actual Cash Value||Up to home’s current worth (deducting for depreciation)||Yes|
|Replacement Cost||Up to 100% of the cost to replace your home||No|
|Extended Replacement Cost||Up to 120% to 125% of the cost to replace your home||No|
|Market Value||Up to the cost that a buyer would pay for your home||Yes, if home's value has decreased|
|Guaranteed Replacement Cost||No limit||No|
Learn more: What Is Replacement Cost Coverage?
When to consider guaranteed replacement cost insurance
Guaranteed replacement cost coverage isn’t for everyone and isn’t available in every state. However, this option may be a good fit if you live in an area that’s prone to natural disasters. Since the cost of building materials rises with inflation and labor costs can skyrocket if many homes in your area are hit by a natural disaster, this coverage may be a good choice.
Even if you don’t live in a disaster-prone area, guaranteed replacement cost can provide peace of mind, which may be worth the extra cost.If guaranteed replacement cost coverage sounds like the right option for you, contact your insurance provider to find out if it offers this coverage. Then, compare quotes from at least three different carriers to get the best rate for your situation.
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