Extended replacement cost is an endorsement on your home insurance policy that extends your dwelling coverage by 10% to 50% of the cost to rebuild your home. Also known as extended dwelling coverage or increased replacement cost, extended replacement cost may help repair or rebuild your home after a covered loss when the cost of materials and labor have increased in your area. Note that "replacement cost" refers to the cost to rebuild your home, not the actual market value of the house.
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If the damage resulting from a covered loss exceeds your dwelling coverage limit on your homeowners policy, you're responsible for the additional expense. Purchasing an extended replacement cost endorsement increases your dwelling coverage limit, which may safeguard against paying the excess costs out of your pocket. Here's an extended replacement cost example to consider:
Example:Your home is destroyed by a hurricane and your policy's dwelling coverage is $300,000. Because everyone else in the area is also trying to rebuild, construction costs go up dramatically. Your contractor estimates it will cost $350,000 to rebuild your home, leaving you with a $50,000 bill to cover. If you have a 25% extended replacement endorsement on your policy, your dwelling coverage would extend up to $375,000, covering the new cost to rebuild your home.
Costs vary by insurer and the amount of coverage you choose. The cost for the extended or increased replacement cost endorsement depends on the percentage you choose to purchase and your dwelling coverage limit. You may pay more if you live near the coast or in an area at increased risk for certain perils like wildfires.
If you live in a high-risk area for flooding, hurricanes, wildfires, earthquakes, or other natural disasters, extended dwelling coverage may protect you against increased costs that often come after natural disasters. When widespread damage and destruction hit an area, the cost of rebuilding or repairing homes will often increase as materials and labor are in higher demand by those affected.
Guaranteed replacement cost coverage can pay to repair or rebuild your home even if the damage exceeds the limits of your policy. While increased replacement cost coverage has a set limit, guaranteed replacement cost often has no specified limit for the extra coverage. Note that many insurers don't offer guaranteed replacement cost.
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Please note: The above is meant as general information to help you understand the different aspects of insurance. Read our editorial standards for Answers content. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provisions, limitations, or exclusions expressly stated in any insurance policy. Descriptions of all coverages and other features are necessarily brief; in order to fully understand the coverages and other features of a specific insurance policy, we encourage you to read the applicable policy and/or speak to an insurance representative. Coverages and other features vary between insurers, vary by state, and are not available in all states. Whether an accident or other loss is covered is subject to the terms and conditions of the actual insurance policy or policies involved in the claim. References to average or typical premiums, amounts of losses, deductibles, costs of coverages/repair, etc., are illustrative and may not apply to your situation. We are not responsible for the content of any third-party sites linked from this page.
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