If you want to ensure that you will be able to rebuild your house to the way it was prior to a disaster, then this is a critical coverage enhancement to add to your home insurance policy.
As a homeowner, you want to be confident that your home insurance policy will provide adequate financial protection if your property is ever destroyed due to a catastrophe, like a fire or severe storm. To make sure you have the right amount of coverage for these scenarios, your insurance professional must get an accurate valuation of the structure of your home. The Austin Insurance team dedicates a great deal of time and attention to thoroughly evaluating our clients’ properties before we recommend the proper amount of home insurance coverage we think they should have. This often leads us to recommend Guaranteed Replacement Cost Coverage for the most complete financial protection.
How does Guaranteed Replacement Cost Coverage differ from Replacement Cost or Extended Replacement Cost Coverage?
The most common home valuation option that people select when getting a home insurance policy is called replacement cost coverage. In the wake of a substantial property loss, this type of coverage is designed to help pay for the costs to reconstruct your home to the same size and functionality that it was before being damaged, using materials of similar type and quality.
Replacement cost coverage might sound like the financial protection you would want and need if something disastrous should occur. However, this type of safeguard can fall short for homeowners if their house requires repairs that go beyond their policy’s financial coverage limits.
The following are some scenarios in which replacement cost coverage might not cover the entire cost of a home’s rebuild.
- There is a labor or materials shortage in your area. This often happens when a natural disaster, like a tornado, hailstorm, wildfire, or hurricane, impacts an entire community. If numerous homeowners in your area need to rebuild houses at the same time, the competition for contractors and building supplies can drive up construction costs to the point where they exceed the limits of your replacement cost policy. Due to global warming, experts predict extreme weather events will occur with more frequency and intensity. In the event of a widespread disaster, the last thing you and your family would want to do is put your home’s rebuild on hold, waiting to see if construction costs go down so your insurance will cover the repairs.
- The annual inflation adjustment in your policy does not keep up with the costs of rebuilding materials. At renewal time, most home insurance carriers will make an automatic adjustment to your replacement cost coverage of between 2% and 4% to keep pace with inflation. However, if construction costs related to rebuilding your home have escalated faster than inflation, this can leave you underinsured at the time of a loss. For example, the National Association of Homebuilders reports that lumber prices have climbed 130% since mid-April of 2020. Building materials and labor costs were already on a fast, upward trajectory prior to the coronavirus emergency, but the pandemic only exasperated them. If you were to experience a home loss today, it could be cost prohibitive to even try to replace it, as you would likely blow through the limits of your coverage quickly.
- Your replacement cost coverage does not reflect the increased value of your home after making upgrades. Since your home’s valuation and replacement cost are typically based on factors such as square footage, number of rooms and bathrooms, appliance types, and cabinet and countertop quality, any changes to these types of home characteristics should be reported to your insurance professional so they can properly adjust your coverage. If disaster strikes before a new valuation is done, your policy’s replacement cost will not reflect your improvements and you’ll likely end up having to pay for these upgrades—again.
You can enhance your replacement cost coverage by getting extended replacement cost coverage. This option typically increases the limits of your dwelling coverage by 25% to 50%. However, extended replacement cost coverage still leaves you vulnerable to the same risks as replacement cost coverage. In other words, there will be a designated cutoff amount, at which point your insurance company will stop paying for the rebuild of your home.
If you are looking for more certainty than what replacement cost coverage seems to offer, then Austin Insurance strongly recommends you consider investing in guaranteed replacement cost coverage.
When you have guaranteed replacement cost coverage, your insurance company typically pays for the costs to rebuild your home, without any limits and without the risk of running out of funds. By choosing guaranteed replacement cost coverage, you should have peace of mind that your insurance will be there to help you start getting your home and life back together right away.
Since not all insurance companies offer this type of coverage and not all homes are eligible, it’s beneficial to work with an experienced insurance professional like Austin Insurance who can secure this broad coverage through one of our insurance carrier partners. We will also seek out the best rates for this additional and surprisingly affordable coverage.
Experience Austin’s personal approach to insuring your home.
If you are new to Austin Insurance, we think you will find our personalized approach to home insurance is very rare in the industry. We take the time to come out to your home and explore every facet of your property to ensure that we value your property correctly, recommend the right coverage options to fit your unique needs and budget, and provide you with the best ongoing service for the long term.
We are here to provide expert advice on important homeowner decisions such as choosing between guaranteed replacement coverage and other important endorsements that can better protect your home and belongings. We are dedicated to making sure you end up with the home insurance solution that is right for you and your property and, most importantly, one that does not fall short of your expectations and needs if you ever have to file a claim.
To experience our personalized approach to home insurance, please call the Austin team today at 781-447-5561.