Guaranteed Replacement Cost Coverage: A Must for Homeowners Insurance


If disaster strikes, will your homeowners insurance cover the cost to replace your home? A basic policy might not be enough to provide peace of mind — you need guaranteed replacement cost coverage.

This article is sponsored by Erie Insurance.

Badly damaged home from a natural disaster
If your home insurance is lacking, you might be paying out of pocket to rebuild your home. (bjunda, Getty Images Signature)

What is Guaranteed Replacement Cost?

When something goes wrong, such as a natural disaster or a fire, the insurance company will cover your loss—or at least, up to a certain dollar amount—after you pay a deductible based on your policy’s terms and conditions.

Many people believe an insurance policy will cover all the damage after a disaster. Unfortunately, this isn’t automatically true — and many people don’t realize it until it’s too late.

For example, if an electrical fire claimed your home, depending on the type of insurance coverage you have, your  policy might only cover the home’s current value minus depreciation and wear and tear. That means the insurance company wouldn’t write a check to cover the entire cost of building a new house if construction costs significantly increased due to inflation or unforeseen circumstances.

You could pay out of pocket to cover the remainder — or cut costs by sacrificing some of your old home’s features. But those options add steps and stress to the project during an already difficult time.

Guaranteed replacement cost, on the other hand, covers the amount to repair or replace your home after a covered loss — even if it would cost more to rebuild your home today than it did when you bought it.

With Erie Insurance’s Guaranteed Replacement Cost coverage, you’re covered even if you have to build a new home.

Of course, there are some important terms and conditions.

Under Guaranteed Replacement Cost coverage, you must report home improvements over $5,000 — such as, say, new construction on an addition — within 90 days. Depreciation may be deducted until repair or replacement is.

In addition, the coverage of costs is subject to limits and must comply with laws or ordinances, so terms may vary based on where you live.

Guaranteed Replacement Cost Coverage is not available in all states, so check with your insurance agent to see if you qualify.

Construction, rebuilding a home
Guaranteed Replacement Cost covers the amount to rebuild your home, even if it costs more to rebuild today than when you bought it. (brittak, Getty Images Signature)

Why You Need Guaranteed Replacement Cost

Even if your homeowners insurance has a high limit, the cost to repair or rebuild is always in flux.

Your policy’s current limit might allow you to completely rebuild your home this year, but if building costs and inflation rise, it may only cover a portion of that next year.

Guaranteed replacement cost coverage, then, provides greater peace of mind than policies that deduct for depreciation when calculating reimbursement.

If you don’t have guaranteed replacement cost coverage, the work stops when the money runs out. So, you’re left with an incomplete project that you must pay out of pocket to finish.

Having this coverage could potentially save you thousands of dollars after a disaster.

Couple shakes hands with an insurance agent in an office
Insurance can be complicated, so speak with an Erie Insurance agent to find the best policy for you. (Pixelshot)

Which Insurance Policy is the Best?

Now that you know what guaranteed replacement cost is, it’s time to consider what type of policy you need to accompany it.

A common question is, “How much coverage should I get for my home?” The answer boils down to how much you’re willing to sacrifice — which should be nothing.

Always opt for full coverage. If you go with any less, you could potentially lose tens to hundreds of thousands of dollars if something goes wrong — just to save a couple of hundred dollars in an annual premium.

Home insurance can be complicated, so let an experienced agent help you assess your needs and risk tolerance to find the right coverage.

Erie Insurance, established in 1925, has claims adjusters who are trained to know how different homes are constructed, the materials used, and which kinds of damage can occur.

Their independent agents provide 24-7 support, a wide array of coverages, and no gray areas so that you’re provided with a full understanding of your policy.

Further Reading


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