If disaster strikes, will your home insurance be enough to help you rebuild? Construction costs are on the rise. That’s led to cases in which some recent wildfire survivors haven’t gotten enough insurance money to rebuild.
Extended replacement cost coverage offers an extra 10% to 50% in insurance on top of your dwelling limit. If you’re worried rising costs will leave you underinsured, it’s worth considering.
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Answer a few questions to see custom quotes and find the right policy for you. What is extended replacement cost coverage?
Home insurance policies typically cover your home on a replacement cost coverage basis. This means your policy will pay to rebuild or repair your home after a covered loss, up to your dwelling coverage limit.
Extended replacement cost coverage takes it further. It pays a certain percentage above your coverage limit if rebuilding your home costs more than expected. This coverage typically adds anywhere from 10% to 50% over your policy limit.
For example...
Say your dwelling coverage limit is $300,000. You buy an extended replacement cost coverage rider that increases your coverage by 25%. A covered disaster destroys your home, and the estimated cost to rebuild is $375,000.
Your insurer will pay the $300,000 dwelling limit plus 25% of that limit, which is $75,000. You would get $375,000 total — enough to rebuild your home.
Most insurance companies offer extended replacement cost coverage. Many offer it as an optional endorsement, although some include it with your policy automatically. Policies with extended replacement cost coverage tend to be more expensive than those without it.
Extended replacement cost vs. guaranteed replacement cost
Extended replacement covers up to a set percentage over your dwelling limit. Guaranteed replacement will pay to rebuild your home after a covered disaster, no matter the cost.
For example...
To use the previous example, say you have a dwelling limit of $300,000 and 25% extended replacement cost coverage. Your policy would pay up to $375,000 to repair or rebuild your home to its original condition.
But if the construction company quoted you $400,000 to rebuild, you’d have to come up with $25,000 yourself. With guaranteed replacement cost coverage, your policy would pay the full $400,000.
Note that in both scenarios, you’re still responsible for your deductible. This is the amount subtracted from your total claim payout.
Who should consider extended replacement cost coverage?
You may want to consider extended replacement cost coverage if you live in an area prone to hurricanes, wildfires or tornadoes. Not only can these disasters destroy your home, but they can also cause damage across a wide region. That can lead to construction costs going up in your area because so many people need repairs at once.
In these scenarios, extended replacement cost coverage can be a buffer against underinsurance.
Remember that the coverage will pay only a certain percentage above your dwelling limit. So in some cases, you may still face out-of-pocket costs beyond your deductible.
🤓 Nerdy Tip
Extended replacement cost coverage doesn’t pay to bring your house up to current building codes. For this type of insurance, look into ordinance or law coverage. How to get extended replacement cost coverage
Most home insurance companies offer extended replacement cost coverage as an option. Some, like State Farm, even include it in their standard policies. However, availability can vary by state or region. Check with your agent or home insurance provider to see what options you have.
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