What is Extended Replacement Cost? (2024)

FAQs

What is Extended Replacement Cost? ›

Extended replacement cost is an endorsem*nt on your home insurance policy that extends your dwelling coverage by 10% to 50% of the cost to rebuild your home.

While extended replacement cost covers rebuild and replacement costs up to a predetermined percentage, there is another option that provides even more coverage. Guaranteed replacement cost covers the total amount to rebuild your home and replace all personal property, no matter the cost.

An extended coverage endorsem*nt (EC) was a common extension of property insurance beyond coverage for fire and lightning. Extended coverage added insurance against loss by the perils of windstorm, hail, explosion, civil commotion, riot and riot attending a strike, aircraft damage, vehicle damage, and smoke damage.

Extended Replacement Cost is a common endorsem*nt that you can add to your policy that will help protect your home in the event of an unusual surge in the price of materials or labor. The most common amount endorsed for extended replacement cost is 25% but each carrier will vary in the percentage amount you can select.

Extended Dwelling Coverage is an additional amount of insurance that you may be able to add to your home insurance policy. This coverage can help pay for covered losses that exceed your policy's current Dwelling Coverage limits.

If you have Replacement Cost Value (RCV) coverage, your policy will pay the cost to repair or replace your damaged property without deducting for depreciation. If you have Actual Cash Value (ACV) coverage, your policy will pay the depreciated cost to repair or replace your damaged property.

Guaranteed Replacement Cost and Extended Replacement Cost

GRC policies guarantee that your insurer will cover all necessary rebuilding costs, even if they exceed your coverage limit. ERC policies will cover a specified percentage above your policy limit. Both options boost the cost of your premiums.

In many cases, the extended coverage is small and provided at no additional cost. An example of an extension on general liability insurance is called Customer Property Protection. This covers the property of others that is in your care, custody, or control up to a specific limit that will be detailed in your policy.

Extended replacement cost coverage takes it further by paying a certain percentage above your coverage limit if rebuilding your home costs more than expected. This coverage typically adds an extra 10% to 25% over your policy limit, although some insurers will pay up to 50% over your limit.

Extended car warranties typically cover malfunctions in a car's powertrain for a set period beyond the standard warranty. Powertrain extended warranties typically cover the car's: Engine. Drivetrain components like the transmission, axles, and differential.

Is extended dwelling coverage worth it? ›

Here are some of the benefits of extended dwelling coverage: It can help you rebuild your home to its original condition, even if the cost exceeds your dwelling coverage limit. It is especially important in areas that are prone to natural disasters. It is a relatively inexpensive endorsem*nt.

An extended coverage (EC) endorsem*nt to a standard fire policy adds coverage for the following perils: windstorm, hail, explosion (except of steam boilers), riot, civil commotion, aircraft, vehicles, and smoke.

Guaranteed Replacement Cost is the full cost at the time of loss to repair or replace your home with like-kind and quality of materials, subject to policy limits and a few other limitations, such as permitted areas.

Note: Dwelling coverage on standard policies typically won't protect against damage caused by floods, earthquakes, sewer backups, or lack of maintenance. Learn how flood insurance works and what to do if your home is damaged in an earthquake.

The easiest way to calculate the replacement cost is to estimate the local cost per square foot to build a home by your home's square footage. So, if your local contractors charge an average of $150 per square foot, and your home is 2,000 square feet, the RCV for your home would be $300,000 (150 x 2,000 = 300,000).

You might choose to purchase increased dwelling coverage, such as extension coverage, which would reimburse you for more than the rebuild cost of your home. Dwelling extension coverage insures a home for up to 150% of its rebuild cost.

Guaranteed replacement cost coverage can pay to repair or rebuild your home even if the damage exceeds the limits of your policy. While increased replacement cost coverage has a set limit, guaranteed replacement cost often has no specified limit for the extra coverage.

Agreed value waives any coinsurance penalty and pays 100% of the stated amount (agreed upon amount) for any covered loss. Replacement cost covers the amount it takes to replace your property with new property of like kind and quality up to the limits of insurance.

Market value is the estimated price at which a property would be sold on the open market between a willing buyer and seller under all conditions for a fair sale. Replacement cost is the estimated cost to construct, at current prices, a property worth the amount of the property being appraised.

For example, your home was destroyed in a fire and your policy includes $300,000 in replacement cost value coverage. If the cost to rebuild is $290,000, your insurer will reimburse you for the full cost to rebuild your home, minus your deductible.