Homeowners Insurance: Extended vs. Guaranteed Replacement Coverage

Homeowners Insurance

What would happen if your home was destroyed and you were forced to rebuild after a total loss? Would your homeowners insurance cover it all? The answer is, as uneasy as it sounds, maybe! It all depends on if your insurance carrier is able to offer you extended or guaranteed replacement coverage. In other words, will they cover partial or all expenses to replace your home completely?

For example, if you happen to purchase a foreclosed home for $230,000, but in today’s economy it’s worth $270,000 to rebuild, you would want to opt for $270,000 coverage to ensure your home is fully covered in the case of disaster strikes. Otherwise, if you opted to insure your home for the purchase amount, you’d find yourself paying out of pocket an additional $40,000 to cover the remaining construction costs which in most cases could result in severe financial hardship.

It’s also important to point out that due to inflation and market volatility, building materials and labor are sure to rise with time. Sure they dip in price too, but you must prepare for worst-case scenarios — the main purpose of homeowners insurance. Extended and guaranteed replacement coverage are vital options meant to protect you against unpredictable circumstances that may occur.

For the most part, companies offer homeowners a special home coverage endorsement — extended replacement coverage — that typically pays out an additional 25% or 50% over the dollar amount you insured on your home. In the unfortunate case, that your $270,000 home catches fire and burns to the ground, and is estimated to cost $300,000 to replace, extended replacement coverage will kick in and pay the additional $30,000 to make you whole again.

Guaranteed Replacement Coverage

Guaranteed replacement coverage is the premier choice of coverage for homeowners. You can expect no cap on the dollar amount your insurance provider is willing to pay to rebuild your home due to total loss. Meaning, that in the event of catastrophic circumstances where your home valued at $270,000 is estimated rebuilt cost $400,000, your insurance company is responsible for the additional expense to ensure your home is renewed. For this reason, choosing a home policy that includes guaranteed replacement coverage is the best choice, despite all insurance companies offering this type of coverage.

Take note that these add-on endorsements are available to protect you against rising construction costs, not add additional square footage to your damaged home that wasn’t there previous to the loss. Your main goal is to reduce the risk of rising costs should you experience an unplanned, devastating event.

To learn more about extended and guaranteed replacement coverage, please contact an insurance advisor at Bennett & Porter. We will help you determine an accurate amount of homeowners insurance protection for your dwelling.

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