What's the difference between guaranteed replacement cost and extended replacement cost?

When it comes to insurance coverage for your home, understanding the differences between guaranteed replacement cost and extended replacement cost is crucial - especially if an insurance agent is quoting a policy for you the first time. It's in your best interest to really understand what these terms mean so you can understand what you would be covered for.

Nearly every homeowners policy that we see has some kind of replacement cost coverage. However, not all replacement cost provisions are the same. While both options provide a level of protection for your property, they have distinct features that can impact the amount you receive in the event of a claim.

Here's the difference:

• Extended or Limited Replacement – This provides for extra coverage (anywhere from 20-50%) above the Dwelling coverage. As an example, a home insured at $250,000 with 20% Extended Replacement cost coverage could get up to an additional $50,000 in coverage should the $250,000 not be adequate to replace the home.
• Guaranteed Replacement – This is exactly what it sounds like and what most people mistakenly believe that they have. This provision says that the insurance company is required to pay for the actual replacement cost of a home at the time of the loss, even if it extends well above the actual amount of coverage shown for the dwelling. So, in our example above, the home insured at $250,000 dwelling coverage could be covered for $300,000, $500,000, or what ever amount is required to replace it with like kind and quality. This is far superior to Extended or Limited Replacement.

Some agents will downplay the importance of having Guaranteed Replacement. After all, they have performed replacement cost estimate and get a pretty good idea of what it costs to rebuild. Don’t fall for this trap.

If your home is underinsured, you may not be able to actually replace your homes despite having “replacement cost” coverage (if that's what you choose).

The problem gets even worse in areas that are hit by large natural disasters like wild fires or tornadoes. When a tragic event like that happens, demand for building supplies, contractors, etc. goes way up, as do their prices.

All of a sudden, a home that could normally be built for $200 per square foot may cost more than twice that. This leaves the homeowner holding the bag for the difference, unless they buy a guaranteed replacement cost policy.

We hope this illustrates just how important it is to understand the type of coverage you have on your home.

Wondering what type of coverage you have? Let us take a look!

A little more about Blue Marsh Insurance...

When he founded Blue Marsh, Tom Davenport wanted to create a different kind of insurance company. One that’s built on personal relationships and a local presence. One where you, the customer, feel more like a friend.

As an independent insurance agency, Blue Marsh Insurance represents a carefully selected group of financially strong, reputable insurance companies. Therefore, we are able to offer you the best coverage at the most competitive price.

If you’re interested in starting a quote online or having us take a look at your current policies, click here!