Guaranteed Replacement Cost – Something Invaluable for Homeowners
Over the last year or so we’ve seen a dramatic change in the real estate market and the values of homes. We have also seen a drastic increase in raw materials which can cause a myriad of issues when it comes to replacing your home in the unlikely event it were destroyed. Are you sure that your house would be replaced? One way to ensure you can rebuild your home is to have guaranteed replacement written into your insurance coverage.
What is the guaranteed replacement cost? This type of coverage says that the full cost of replacing the home, even if this amount exceeds the policy limits, will be completed. The increased building materials costs, delays due to material shortages and increased labor costs all increase the reconstruction costs, making policy limits of coverage inadequate in many situations. The level of coverage helps the insured avoid being underinsured or caught off guard in the event of a complete loss. One thing to remember, is that the homeowner must allow the insurer to set the replacement cost and automatically increase it as needed. It should also be noted that rules can vary from state to state and between companies so be sure to completely understand your policy language.
So why should you have guaranteed replacement? Simple. To avoid financial devastation! For example, say you owned a home and the value to replace it today is $600,000. If your policy language had limits of $500,000, you would have to come up with the shortfall from your own cash resources. However, with guaranteed replacement, your home would be restored completely at the $600,000 level and all you would have to pay most likely is the deductible. As you can see, it makes far more sense to have this level of protection for your most valuable asset.
So what is the cost difference? While the price difference will vary from state-to-state and from company to company, you can generally expect to pay between 5 to 10% of your annual home insurance premium for this invaluable coverage. So, if your annual premium is $1000 for home insurance, you could expect to pay between $50 and $100 for guaranteed replacement.
Does every company offer this type of coverage? The simple answer to this is no. Many companies out there in the market today do not offer guaranteed replacement. There may be many policies that offer a specific percentage of replacement but not the total cost. Top quality insurance companies will most always offer guaranteed replacement and for the most part have better products overall.
The old saying of “pay a little now or a lot later” surely came to light when we talk about guaranteed replacement for your home. If you’d like to have one of our insurance professionals review your policy to ensure that you’ve got the adequate coverage to place your home, contact American Advantage IFS today for a free consultation.