What is extended Replacement Cost coverage and what are my options?
If you have a good comprehensive homeowner’s policy, you might think that you are completely covered in case of a catastrophic loss. But did you know that under many policies you may still be responsible for a large portion of the bill after your home is destroyed. In fact, there are four different replacement cost options that your homeowner’s insurance policy might offer. Below, we define each of these types of coverage and tell you why you should select Guaranteed Replacement Coverage or if this is not available, Extended Replacement Coverage for homeowner insurance.
- Guaranteed Replacement Coverage: This is the most comprehensive homeowner’s insurance coverage. If your home is heavily damaged or destroyed, your insurance will pay for the entire cost of repairing and/or rebuilding no matter what your insurance limit. Unfortunately, this type of coverage is no longer readily available. You will likely have to settle for one of the three types below instead.
- Replacement Coverage: This coverage will pay for the cost of rebuilding your home up to the policy amount. For example, if you have a policy with $200,000 of coverage and your home is totally destroyed, your insurance will pay up to $200,000 in repairs for a covered loss.
- Extended Replacement Coverage: This type of coverage is the most comprehensive of the widely available plans. Extended replacement coverage will cover repairs up to the policy amount, but will, depending on the replacement percentage you select, cover an additional 25% – 200% of the policy amount for a covered claim. This additional coverage can pick up some of the extra cost if your repairs exceed your policy coverage amount.
- Actual Cash Value Replacement Coverage: This type of coverage will pay for the actual original cash value of the damaged portions of your home. This type of coverage will generally not cover the entire current cost of fixing your home. This is not recommended and is typically only offered when buildings are very old and are not well taken care of or updated.
Please call your knowledgeable broker at TMIB who can help you determine what coverage you currently have and assist you with obtaining broader coverage if necessary. We can be reached at 310-828-9662.