• Do you need Guaranteed Replacement Cost?

do you need guaranteed replacement cost, U.S. News & World Report, CNN—lately, these and other major news outlets have been talking about an insurance option called “guaranteed replacement cost” and touting the reasons why homeowners and homebuyers may want to seriously consider adding it to their home insurance policy.

This has been causing quite a stir, and as a result, the Morse team has been fielding questions from clients who want to know what all the buzz is really about. So, of course, Morse wants to share the details you should know about this increasingly popular—and important—insurance endorsement, and help you understand why guaranteed replacement cost is something you should consider adding to your homeowners policy.

What is guaranteed replacement cost coverage?

When you have a home insurance policy with guaranteed replacement cost coverage, it typically means that if your house is destroyed by a covered event, your insurance company may pay the cost of rebuilding and restoring it to its pre-disaster condition. That’s about as uncomplicated as it gets when it comes to insurance products.

How does guaranteed replacement cost differ from the home insurance coverage I might have right now?

This is such a great question because, like most homeowners, you probably expect that your home insurance already covers a rebuild of your house if it’s destroyed by a covered event. After all, isn’t that one of the main reasons for having a homeowners policy in the first place?

However, if your current home insurance does not have guaranteed replacement cost coverage and you experience a disaster, you may end up having to put in some (or a lot) of your own money to restore your home to its original quality and features.

For example, most standard home insurance policies include replacement cost coverage rather than guaranteed replacement cost coverage. If you have replacement cost coverage, this means that your insurance company came up with an agreed-upon replacement value for your home. In general, this value is based on the distinct characteristics of a property, including square footage; architectural style; roofing material type; special features such as fireplaces, exterior trim, or arched windows; and more.

To come up with this number, the insurance company typically also takes into consideration the latest market prices for goods, materials, and labor specific to your zip code. Once they have a replacement value for your home, your insurance carrier sets a coverage limit based on this number. This limit is the maximum amount the company will contribute financially to repair or rebuild your house if it is ruined by a covered event. So, what happens if expenses rise above this predetermined limit during the construction process? You are typically going to be responsible for paying them.

It’s possible that you have another home insurance coverage option called extended replacement cost. If you have this type of coverage, your insurance company does the same replacement value calculation for your home and, again, sets a coverage limit based on that number. However, because you have extended replacement cost coverage, your insurance company has agreed to pay a specified amount over and above this limit, anywhere from 25% to 50%, if the cost of a rebuild or repairs extends beyond your coverage limits. In this way, having extended replacement cost coverage may offer a minimal financial safety net in a claims situation. Yet, it’s critical to understand that there is still a limit to how much the insurance carrier will reimburse you, which can leave you with a gap you have to fill with your own cash.

If you are not sure which type of home insurance coverage is in your policy, feel free to give Morse a call today. We will gladly review your home insurance and walk you through your coverage details.

How does guaranteed replacement cost work?

By now, you’re probably realizing that one word—“guaranteed”—can make a huge difference in how much financial assistance you might get from your home insurance company in a claims situation. If you experience a covered event and you have guaranteed replacement cost coverage, your insurance carrier typically takes care of the total cost of returning your home to its original quality and features, even if—and this is the most important part—the related expenses exceed your policy’s coverage limits.

Do I need guaranteed replacement cost coverage?

Guaranteed replacement cost coverage is not a new home insurance option. It’s been available for a long time, but previously it was primarily included in policies for higher-value homes, properties that were recently built, and houses with numerous special features, all of which can be extremely challenging and expensive to repair or replace.

Now, though, including guaranteed replacement cost coverage in a homeowners policy is becoming far more commonplace. To understand why, ask yourself these two questions:

  • Has your area experienced a natural disaster or destructive storm system?
  • Has the cost of materials and labor gone up in your area?

Most homeowners would unfortunately have to answer “yes” to at least one of these questions, if not both. There has been a significant uptick in severe and damaging weather patterns across communities, which has created a shortage of construction supplies and labor and made for a very competitive marketplace. In addition, the pandemic, along with inflation, has driven up the cost of most construction materials to record-high levels. The end result is it has become exceptionally difficult and pricey to restore any home after a disaster.

If you’re a homeowner or homebuyer who wants peace of mind that your home insurance will help you return your house to its previous size and specifications if it is damaged or destroyed, it’s time to speak with your insurance professional about getting guaranteed replacement cost coverage.

Have more questions about guaranteed replacement cost coverage?

The Morse team is here to provide as much information as you need to make a decision about whether to add this coverage to your homeowners policy. If you determine this is an option that seems to make good sense for your property, the process for getting guaranteed replacement coverage is usually easy. Although there are some homes that may not qualify for this coverage, verifying your eligibility is one of the first things we will do. Then, we can get you a quote for enhancing your home insurance protection with guaranteed replacement cost coverage, which typically doesn’t add more than a few dollars a month to your premium. Just give us a call at 508-238-0056 and Morse, of course, will get started on helping you uncover the insurance options to best safeguard your valuable home.

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