2020 has taught us that nothing is guaranteed. Did you know this could also apply to your insurance coverage?

Your home is likely the biggest investment you’ll make in your entire life – your coverage should match that. When an agent quotes your homeowners insurance, the first thing they do is a replacement cost estimation. A replacement cost estimation determines how much would this house cost to rebuild if it burned to the ground. It’s important to note that this number is different from the number a home would resell for, but that’s a blog post for a different day.

Supply and Demand

After that number is determined, that number is used as the amount of coverage placed on the home. In theory, this makes perfect sense. This home is worth $300k so the amount of coverage needed to rebuild it should something happen will also be $300k. Unfortunately, it’s not that easy. The problem with this comes from supply and demand. Regular replacement cost is determined with normal market conditions in mind.  2020 is a great example of a time when market conditions were not normal.

If you’ll remember, middle Tennessee was hit hard by a tornado back in March. This tornado went for 41 miles and hit a large number of homes within that range. This skyrocketed the demand for supplies and labor to make the repairs and rebuild these homes. The problem is, some insurance companies don’t extend replacement cost coverage to help you in these situations. A “normal” company may give you a 25% – 50% leeway in coverage to combat this. But what if that still isn’t enough coverage? Well, it then comes straight out of your pocket.

Guaranteed Replacement Cost

Your better companies, however, offer an endorsement on your policy that can protect you from this. Guaranteed Replacement Cost coverage. (An important note: replacement cost coverage is NOT the same as guaranteed replacement cost.)

This coverage means that if your loss exceeds the coverage written into your policy + the 50% extension, they will still cover the additional expenses. To put this into numbers, let’s say your previously estimated $300k home ends up costing 500k to rebuild. In the best case of regular replacement cost coverage, they’re going to cover up to 50% more. This means that they’ll pay up to $450k to rebuild your home. As we mentioned, your home is now going to cost 500k to rebuild, so who covers the 50k difference? You do. You do not want that to happen and we don’t want that to happen to you either. 

If you do not already have this coverage, PLEASE run to your agent ASAP and get this added to your policy. This coverage is going to protect your wallet and it’s a coverage that you can’t afford to be missing out on. Not sure if you have this coverage? Reach out to us and we’ll help you find out! 


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