Imagine that a tornado rips through your neighborhood, destroying multiple homes, including yours. Construction costs skyrocket in the wake of the disaster, meaning rebuilding your house will cost more than the limits of your policy. Your policy would pay the whole cost of rebuilding your house to its pre-tornado condition with guaranteed replacement cost insurance.
Guaranteed replacement cost (GRC) insurance is a type of homeowners insurance that is responsible for reconstructing your residence just like it was before the damage, regardless of whether the expense exceeds the policy’s maximum. However, there are a lot of restrictions attached to this insurance, and the cost is usually higher than that of regular homeowners insurance. Moreover, not all companies provide guaranteed replacement cost coverage, and not every home is eligible for this coverage.
How Does Guaranteed Replacement Cost Insurance Works
The replacement cost of your house is covered by standard homeowners insurance. Your insurance policy covers the cost of restoring your home to its pre-loss state in the event of destruction or severe damage. However, your coverage is limited to the amount stated in your policy.
Therefore, you will need to either build a less expensive home or pay the additional $50,000 out of pocket if your insured property is worth $300,000. However, rebuilding it after a disaster costs $355,000. Homeowners insurance covers the entire cost of rebuilding your house to its original dimensions and specifications, with guaranteed replacement costs.
Homes in regions vulnerable to hurricanes, tornadoes, and wildfires are frequently advised to obtain this coverage. Following a natural disaster, rebuilding expenses often rise due to the high demand for building supplies like roofing and lumber among affected communities. Added to the high rate of inflation, guaranteed replacement cost is an essential component of a policy.
Who Should Consider Guaranteed Replacement Cost Insurance
Purchasing guaranteed replacement cost ensures your home will be completely rebuilt post-disaster, regardless of the cost. It might also be a wise decision if you reside in a region that is vulnerable to natural disasters, as the cost of reconstruction might exceed the insured value of your house if labor and material costs rise. However, if your home insurance has kept up with local building costs and inflation, you might not require guaranteed replacement cost coverage.
Guaranteed Replacement Cost Insurance Factors
Read the exclusions carefully, even though many insurers claim a GRC policy will rebuild your home and cover your losses. The following can be found in the fine print:
- Different coverage and limits: The scope and limitations of coverage differ from state to state.
- Replacement costs set by the insurer: The insurer determines the upper limit of its estimated replacement costs, which it may raise later on in response to inflation or other circumstances.
- Land and other buildings: Some policies include coverage for other on-site structures, such as garages. A lot don’t include land.
- Code updates: Verify your policy to be sure, but GRC policies might pay for rebuilding expenses to comply with contemporary building regulations, including permits. Some insurers offer this coverage as a stand-alone building code endorsement.
How Much Does Guaranteed Replacement Cost Insurance Cost
Guaranteed replacement coverage prices vary based on carrier, location, and homeowners insurance policy type, similar to other endorsements. It may even change according to variables like your home’s value and your insurance score. A guaranteed replacement rider in your homeowners’ policy is generally only a few dollars more per month.
Which Companies Provide Guarantees Replacement Cost
Several insurance companies provide guaranteed replacement cost coverage, though availability may vary based on your state and area. These companies include:
- AIG
- Travelers
- Erie
- Chubb
- Acuity
- Include
- MetLife
- Plymouth
- USAA
- Amica
- Farmers
Requirements for Guaranteed Replacement Cost
Certain homes will not be eligible for GRC insurance. Your house might not qualify, for instance, if it
- Is older than what a typical insurance provider will pay for
- Is roofing composed of particular materials older than a certain age, such as a wood roof that is older than 12 years?
- Possesses unrepaired property damage
- Possesses siding or roofing made of asbestos
- Is it vacant, forsaken, or condemned?
What are Loss Settlement Options in Homeowners Insurance
Homeowners can choose from various options that companies provide, referred to as “loss settlement options” in the industry, including guaranteed replacement cost coverage. Insurance companies use various methods to settle losses, including replacement cost, increased cost, actual cash value, and guaranteed cost, depending on individual operations and services provided.