What is extended replacement cost?

What does extended replacement cost cover?

Your insurance policy has dwelling coverage, but why does it also show extended replacement cost (also known as additional replacement cost)?

If you file a claim for your dwelling coverage you’re typically covered at the home’s replacement cost amount, meaning the insurance company will pay to rebuild the home back to the coverage limit.

By including extended replacement cost, you are insured for a certain percentage over your policy limit. This is typically between 25% and 50%.

For example: Your policy shows a dwelling coverage limit of $500,000. You have extended replacement cost of 25%. In the event of a total loss, the insurance company would actually reimburse you up to $625,000 to rebuild.

How does extended replacement cost work?

Without extended replacement cost, the insurer will reimburse up to the dwelling coverage amount on the policy to rebuild or replace your home to its condition before it was damaged. Replacement cost is the rebuild amount for the home, it is not the market value of the home or the land value.

What’s the point of extended replacement cost?

With standard replacement cost, you can update your coverage limit to account for renovations or upgrades. However, certain things can’t be controlled like the inflated costs of building materials and labor after a large loss or natural disaster. This is where extended replacement cost comes in.

How much is extended replacement cost to add to the policy?

It’s an additional cost, but not by much. Typically you will only see a $20 to $50 increase in premium per year.

This content is intended for informational purposes and should not be considered legal or financial advice. We will work with you to determine what coverages and products are right for you.