Guaranteed Replacement Cost vs Replacement Cost Coverage

Posted by Farrell Agencies on March 7, 2018

Guaranteed Replacement Cost

Guaranteed Replacement Cost is a type of home insurance policy that offers the highest level of coverage. This policy will pay whatever it costs to put your home back together as it was before the covered disaster–regardless of the limits listed in your policy.

A Guaranteed Replacement Cost policy protects you from sudden increases in construction costs due to a shortage of building materials after a massive disaster or other unexpected situations.

Although it will get your house back to its original state, it generally won’t include the cost of upgrading your house to current building codes. If this is a priority, you should get an add-on (they call this an endorsement) to your policy called By-Laws to help pay for these additional costs.

If you own an older home, the cost of rebuilding it to its original glory prior to a disaster may be prohibitive. As a result a guaranteed replacement cost policy may not be available to you.

Replacement Cost Coverage

This is a type of insurance policy that pays damages equal to the replacement value of the damaged property, regardless of depreciation.

Replacement cost coverage is one of two major types of policies you can choose from when buying a homeowners or renter’s insurance policy.

Unlike an actual cash value policy which factors in the age and condition of the item when paying out a claim, when you go with a replacement cost policy you won’t have to worry about that.

With a replacement cost policy, the insurance company will pay you the amount of money that it will take to replace the item – regardless of what it’s worth in the market today.

For example, if your five year-old TV is damaged or stolen an actual cash value policy would only pay you the amount that item is worth in today’s market. However, with a replacement cost policy it doesn’t matter how old your TV is. The insurance company will give you the amount of money it will cost you to go out and buy a TV like it at today’s prices.

A replacement cost coverage policy will be more expensive than an actual cash value policy – but it may be well worth the investment.

For more information or to receive a quote contact us or stop into any Farrell Agencies office, we would love to see you!

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