What Is Extended Replacement Cost?

What Does Extended Replacement Cost Cover?

When reviewing your insurance policy, you may notice that it includes dwelling coverage alongside extended replacement cost (also referred to as additional replacement cost). But what does this mean for you?

Typically, dwelling coverage protects you up to a specified limit for the cost to rebuild your home if it is damaged. This amount is based on the home's replacement cost, meaning the insurer will cover the expenses to restore the property to its previous condition, up to the policy limit.

With extended replacement cost, however, you have additional coverage that allows for a certain percentage above your policy limit—usually between 25% and 50%.

For example: If your dwelling coverage limit is $500,000 and you have 25% extended replacement cost coverage, the insurance company would reimburse you up to $625,000 in the event of a total loss.

How Does Extended Replacement Cost Work?

Without extended replacement cost, your insurer will only reimburse you up to the dwelling coverage limit for rebuilding your home to its pre-damage condition. It’s important to note that the replacement cost is focused on the rebuilding amount and does not account for the market value of your home or the value of the land.

Why Consider Extended Replacement Cost?

While you can adjust your coverage limit to reflect renovations or upgrades, certain unpredictable factors—such as rising costs for building materials and labor following a significant loss or natural disaster—can impact the cost of rebuilding. Extended replacement cost helps mitigate this risk by providing a financial buffer.

What Is the Cost of Adding Extended Replacement Cost to Your Policy?

Adding extended replacement cost coverage is generally affordable, with an increase in your premium typically ranging from $20 to $150 per year.

This information is for educational purposes only and should not be considered legal or financial advice. We are here to help you assess your needs and determine the appropriate coverages for your situation.