Does “guaranteed replacement cost” even exist for homeowner’s insurance?

Dave Ramsey recommends that you get “guaranteed replacement cost” coverage on your home in case construction costs jump up right at the time that your house burns down, and I found this text at the MOAA website:

Most insurance experts recommend “actual replacement cost,” “guaranteed replacement cost,” or “full replacement cost” language within the policy. This can be particularly important for owners of older or historic homes, for which the true replacement cost could be considerably higher than the current market value of the home. If the policy is for “actual cash value,” then the cost to fully replace the home might not be covered. Certain carriers require a separate full replacement cost rider for historic homes. Failure to cover your home at full replacement value can be a nasty shock in the case of a major loss.

However, I can’t find ANY company willing to sell me such a policy!! Do they even exist any more?

UPDATE: I found one! Yup, it is my current insurance company AAA. It’s not even an option there, they just do it that way. Unlike every other company, that acted like I was a crazy person for asking such a silly question, AAA just said “Of course, after all there might be a hurricane and construction costs might jump up and you wouldn’t have enough insurance.”

UPDATE: I was wrong. My AAA policy is just for 25% over the coverage amount, just like everyone else. Stinker. The odd part is that even though they only insure to the coverage amount, they won’t let me choose the coverage amount.

UPDATE: In the end, I went with AllState. This will save me about $250/year on home owners insurance, and $100/year on car insurance, and $80 in auto club membership. They will cover the cost of rebuilding the house in the event of a total loss, up to 120% of the stated value. So I’ll just have to watch that value very closely from year to year and make sure that it is high enough. At least they will let me change the value up or down if I think that their calculated amount is off.

Several of the insurance quotes I got were just for the tax assessment, which is $20k less than I paid for the house, and definitely not what I would want the insurance to be for. Shameful really, but it made for some really cheap quotes!

39 thoughts on “Does “guaranteed replacement cost” even exist for homeowner’s insurance?”

  1. The replacement cost is calculated by a number of factors. You generally can purchase more coverage but not less than the calculated amount determined by the insurance company’s calculation method. I am an Allstate agent in CA and we allow the insured to increase the dwelling coverage and, depending on the policy, we offer 150% of replacement cost. Guaranteed Replacement Cost Coverage doesn’t exist; at least with Allstate in CA it doesn’t.

  2. If a company only offers 125% and not unlimited, simply ask your agent to increase your dwelling limit amount. Insurers don’t mind increasing coverage, usually.

    1. I work at an auto and home company and wanted to add to this comment. If you increase your dwelling value on your home you are not guaranteed to always get what you want to have your home as covered. Make sure you know what the evaluation process is to determine the reconstruction value on your home from the ground up. This way you can assure that the company is up to date with the coverage you need. Of course you can add to your policy but your coverage isn’t guaranteed: only what the value you get with an assessment on your policy.

  3. I write ARIZONA HOME OWNER INSURANCE. The biggest issue for me is making sure each home is insured properly at their renewals. You just never know exactly how much building materials/labor is going up so you need to stay on top of that. Due to the wildfires in past years home owners were caught underinsured and as agents we need to do our job to make sure they are not.

  4. COUNTRY Financial offers GUARANTEED REPLACEMENT COST on homes 30 years or newer. It also has strong industry ratings and superior claims service. I would highly recommend checking them out.

  5. Came to this site in a fairly roundabout way (jeremiahgrossman.blogspot.com -> 0×0000000.com -> 0xdeadbeef.com -> deadbeef.com, and no, there aren’t any links between them – I guess that is how an engineer surfs the web…)

    but thought it interesting that you are having trouble getting insurance high enough – all the places here (Pittsburgh, PA) want me to buy more insurance than I think is correct, and treat me like I am crazy for wanting to do a cost-basis, rather than full replacement coverage…

    Their estimates for “full replacement” are much higher than I would actually pay to replace a house. We actually had trouble getting insurance for our first house because the calculated replacement cost was 3 to 4 times the purchase price, and the computer wouldn’t allow the agents (multiple companies) to quote a policy due to the difference – I gather the problem was that the temptation would be too high to burn down your own house and get a 400% return on your investment in 1 day.

    I am currently looking for policies for our second house, and again, they quoted a replacement coverage at 200% of the purchase price, and when I asked about getting less coverage, she said that I really should be covered for that much, who knows if it would burn down (then she remembered that it was a stone house), … or, maybe a plane lands on it, you never know what might happen… I hadn’t ever considered the possibility of a plane landing on my house before, particularly since it is 30 miles to the nearest airport, but I guess that is what insurance is for – to cover you for crazy things…

  6. There are a number of companies that stillll offer a guaranteed replacement cost; MetLife, Encompass, Fireman’s Fund and Chubb Insurance to name a few. There is no percentage above the stated limit, it really is a guarantee.

  7. I am in GA and taking Dave Ramsey class. I have home owners ins w/allstate. They only offer extened coverage of 25%. Does anyone know of a Co. in GA that offers Guarantee Relplacement Cost and it is stated in the policy using this wording?

  8. I am an independent agent in Illinois, and many of the companies we write for will allow you to choose actual replacement cost, increased replacement cost or guaranteed replacement cost. however, you cannot insure less than the actual replacement cost, unless you want to insure it at ACV (actual cash value), which I would not recommend on your home. The nice thing about being an independent agent is that we can offer insureds various options and companies rather than just one company.

    to: Lisa Fraser – try finding an agent who writes for Auto Owners in Georgia. They are an A++ rated company and will allow you to write guaranteed replacement cost for an additional premium.

  9. Country Insurance covers Homes in Kansas and Missouri and other states at Gtd Replacement cost. No cap… Unlimited. A+ Superior Company also. However, There are certain qualifications.
    For example the Home must
    be less than 30 years of age,
    Previous claims within the last
    5 years are also taken into account for qualification puposes.

  10. Check with an independent agent who writes for many companies. I am independent, and several of our companies offer the endorsement for guaranteed RC. I have it on my home and wouldn’t have it any other way. My house is properly insured, however, if there is a CAT loss or a hurricane,etc.. material and labor costs can spike up quickly. The guaranteed RC offers that peace of mind.

  11. I am in the process of looking for a new combined policy (home,auto). I had so many questions and just googled them. My search brought me here and I just wanted to say thanks to all who posted. Your discussions have made a lot of my confusions clear. Great job!

    1. No. Insurance companies employ people just like you and me. People generally care about other people and want to please them, especially during times of loss. Millions of claims are paid each year and the media will never run a story about an insured that was happy with their claims settlements. Insurance companies in general, and the people that work for them, in general, are always finding ways to please the customer up to the proper limit of the claim.

  12. AMERICAN FAIMLY INSURANCE offers GUARANTEED REPLACEMENT COST. It also has strong industry ratings and superior claims service. I would highly recommend checking them out!!

  13. Plenty of companies still offer 100% true guaranteed Replacement cost without the cap. Yep 120% is a capped policy. Im not sure that the biggest investment you’ll likely make is worth saving $250 to downgrade your coverage. Strikes me as illogical.

    Im not sure what state you are in, because whether the coverage exists and by whom, varies state to state. Searching for home insurance on the internet is your first mistake. they never tell you everything and they mislead you into thinking that the coverage is all the same when its not. Auto insurance offers a slim variance between companies, but when it comes to home insurance, the differences can be staggering. Guaranteed Replacement cost is the first thing you need to get. Do not settle for anything less.

    As for the guy in Pittsburgh, my hometown, insurance is based on the cost to build. My guess is that you must be looking at purchasing a home in an area with depressed home values. What you paid for a house is irrelavent, and only matters in determining moral hazzards as you’ve mentioned. home value doesn’t matter. Case in point, if you buy a house in Homewood, in perfect condition, it may cost $90,000. But if you took that same house and moved it to Mt. Lebanon, it would be probably 3 times that, but yet the price to build would be the same,essentially. (There are some mark ups for locale). So market value matters not. Only cost to build. ACV policies are garbage unless you do not want to rebuild, but walk away. Regardless, they tend to be more expensive and the coverage is worthless in comparison.

    My advice is to suck it up, if everyone tells you the same thing, maybe there is smoke. Smoke= fire. Insure your house right, and reduce your price by the deductible. Clearly you don’t care about your coverage, and you just want to save. So do it there way and take a high deductible.

    Oh, and back to internet shopping, its okay as long as you also go and visit an independant broker. Have them show you multiple quotes and then tell you why they selected it. Set price aside and see what you are getting. most people hate insurance becasue they fail to ask questions.

    1. Actually, ACV sounds great to me. Why pay more to rebuild if I can get the actual cash value and just rebuy? Then I can rebuy a similar $200,000 home instead of paying $400,000 to rebuild it. I don’t have to wait for a house to be rebuilt. Just move in.

    2. awesome answer I agree…insurance is to make you whole again. With the values in homes upside down and people’s beliefs skewed with our “economic times” the general public are clueless on what it costs to build with the same like materials. It makes me really angry who wants to argue otherwise

      1. I could not understand this comment. If ones home value is “upside down” that would imply that the mortgage is for more than the value of the home. In that case, I think that the typically insured would want more coverage. If my home is worth $100,000 and I owe $150,000 to the mortgage company, I would not be pleased with a $100,000 settlement in the event of a full loss. Then I would have no home at all, and still owe the mortgage company $50,000. Often a mortgage company will require that the amount of insurance is equal to the amount of the loan. And be certain that their lien will take the whole $100,000 from you given the above example.

        In many instances an argument for more coverage is be done for the benefit of the insured.

        I do agree though, that many insured may be best served by paying only enough to make them whole. I do not mind paying more for coverage that can potentially make me better of than I was previously.

    3. The reply by Tom A. misses the point in a number of ways. I have enjoyed reading this entire thread and how it can educate some folks so I will respond:

      1) Advising an insured to seek replacement coverage is a very reasonable thing to do. However, in many instances an insured may opt for ACV due to careful understanding of their unique situation rather than behaving illogically.
      2) The guy in PA (Jon Daley) appeared to me to fully understand the purpose of replacement cost and how it compared to market value. Tom A. points out that market value does not matter. In Jon Daley’s case, market value did matter. It mattered with regard to an apparent underwriting requirement that prevented the coverage of a home if the market value was too far below the replacement cost – which was the point he wanted to share.
      3) Not sure who Tom A. advised to “suck it up”; the original poster (Jeremy) or the PA guy?? But neither one needs to “suck it up” because neither “Cleary don’t care about coverage”. They both care about the coverage. The OP was indeed frustrated because he could not seem to find more coverage. In the end he settled for 120% of the stated value because he was unsuccessful in finding “guaranteed replacement cost”. Perhaps he should not have settled. Perhaps he should have shopped better on the internet. I am actually at a loss as to why he was finding it difficult to obtain replacement cost coverage, but the point is he was trying to find more coverage, not less. Same with the PA guy, he appears to be content with paying for coverage that is twice the value of his home.

  14. As Bridgette mentioned, MetLife Auto&Home offers unlimited replacement coverage for homeowners in most states. This coverage endorsement is called “Coverage A Plus”. You can contact any MetLife Auto&Home agent to find out more information.

  15. There probably is a few companies that offer guaranteed replacement cost. The one I am aware of is erie insurance. HOWEVER, this is not an opening to underinsure your home! It is important to remember that at the time the policy is taken out the home must be insured for 100% replacement cost. Also, you must notify your agent if you have done any additions so that the replacement cost estimate can be adjusted. Insurance companies have clauses in the contract that void the guaranteed replacement cost provision or even the additional 25% above the home coverage if you do not comply with the policy provisions to insure your home for its replacemtnt cost. You should check every few years with your agent to make sure your home is insured for replacement cost unless you want to risk being very unhappy in the event of a claim. You could end up with a settlement that includes depreciation for your loss, which may be substantial.

    1. This interpretation of an insurance policy is certainly not correct for standard broad form policies and possible erroneous in all situations. If one has replacement coverage for $200,000, on a home that has an actual cash value (ACV) of $100,000, and at the time of a full loss it is determined that it would cost $220,000 to replace the home, then one has $200,000 of coverage not $100,000. Again, the situation I provided is for standard broad form (polices that cover just about everything and specify what the doe not cover rather than limited policies that specify only what the do cover such as Fire only). Now, perhaps a partial loss would be settled in the following manner, I am not sure: Loss payment = Amount of Loss * $200,000/$220,000. Meaning you only get 90% of the replacement cost because you only insured to 90% of the replacement cost. My policy, Nationwide, provides me with a stated replacement cost amount (determined by formula) that increases automatically each year. The only thing I “loose” by not keeping up with replacement cost (since the insurer picked the RC, and increases it annually, the manner in which I might fail to maintain RC is if I add to the value of the home without notifying the insurer) is the extra 20% OVER the stated replacement cost amount if the actual replacement cost is more than the stated amount (which again was derived by the insurer and increases annually based on an derivative of the CPI).

  16. erik, nice advertisment for metlife. everyone, read my earlier post. Any insurance company will have provisions in the contract that must be met to get a guarantee on replacement cost.

  17. Forget “guaranteed replacement” in Califonria. Because of several Southern Califonia fires, dating from the 70′s and 80′s, many insurance companies got taken! Homes that were originally built as tract homes were replaced under the ‘guaranteed replacement’ endorsements – - – and came out looking like mansions! Because of that, in California, most reputible companies instead offer EXTENDED replacement ( 110%, 125% or 150% of the base or dwelling amount) We recently paid aproximately $350 per suqre foot in the Jesusit and Tea fires in the Santa Barbara area. Other areas may be lower. I recommend asking a professional contrator what he could rebuild your home for – and insure at 10% above that! I would seriously question the validity of a ‘guaranteed replacement’ endorsement on any home policy in California. I know of one insurance company that offers this, but the proof is in the pudding – and I’m not convenced they would actually pay. Greg Honnold Insurance Agent

  18. If you have guararnteed replacement cost coverage it is generally advisable to update your properties value yearly as many providers only cover to 120% of the initial appraisal unless this is done. Likewise you also could take a yearly inventory of your household items that are insured.

  19. In many states where properties have an high LTV and/or in excess of the RC value the cost of replacement may actually be much less that the indebtedness. If the Mortgage Note(s) require an A coverage limit sufficent to cover the loans then the coverage has to be increased because the 20% to 25% bump under the RC endorsement won’t get up to the limit needed. So in these cases an unlimited replacement coverage could avoid paying for a limit way above the RC.

    Ron

  20. The Automobile Club of Southern California (AAA) still offers guaranteed replacement cost for homes built after 1950. It also provides the option of extended replacement cost of 125% for all homeowner’s policies.
    Scott Daly – AAA Insurance Consultant
    866-841-0143×4465

  21. I write in CT where the cost to rebuild a home can be in the neighborhood of $500 a square foot… 150% or more is certainly enough coverage. too many folks/consumers/agents get hung up on purchasing “uncapped”… The past 10 years has shown enormous spikes in building cost and materials due to the housing market, 911, Hurricane Catrina, etc. I can’t remember a situation where 150% would not have been enough…

  22. There is no insurance company that is willing to insure for TRUE gauranteed replacement cost. What insureds fail to realize is that the additional 15-25% cov that most of these companies offer is more than adequate. The programs used for calculating the cost to rebuild (which include laborers, gas, debris removal, etc..) are typically 98% or more accurate.

    1. While reading this entire thread I have been wondering myself if any company truly “guarantees” full replacement cost. I still don’t know for sure. But, as you say; if an insurer was 98% accurate on what the replacement cost is (which, btw, I don’t believe they could be based on ornate moldings, decorative details, stonework, etc) then an insurer could certainly guarantee RC coverage without much risk. However, I am still suspicious that no insurer truly guarantee full RC, rather they provide a usually ample amount of RC coverage at a stated amount.

    2. You have the right thoughts, but I want to add something to your comment. There is at least 1 company doing business in Ohio that does offer the Guaranteed Replacement as well as Replacement Cost options to their policyholders. While you may feel the 20 to 25% Additional coverage above the Declaration page listed Limit of coverage might be enough(that is offered by some carrier), this opens a policyholder up to a potential disastrous problem. If the cost of the replacement products are much higher, do to supply and demand, then the policyholder may have to sacrifice the quality of repair of their home, to stay within that 120 to 125% area. A Guaranteed Replacement Cost Policy allows for the true replacement of the reapir of the home, even when it exceeds the 120 to 125% found in a Replacement cost Settlement by other carrier. And Erie’s Pricing is less expensive then the competitors in general based on certain criteria.

  23. There are a lot of good remarks in this comments section. I would like to add, people need to know the importance of having their agent or insurance company review their home’s replacement cost, any time they do remodeling, construction work, or additions to their home. This is usually a contract requirement in order to get guaranteed replacement cost, or extended replacement cost.

    I’m surprised to see GRC is still offered by so many insurance companies. I recommend getting it, but also make sure you choose an insurance company with a great record for customer service and a low number of complaints.

  24. Sorry, let me clarify my comment above: If you have extended or guaranteed replacement cost, you do a $10,000 remodel of your kitchen and add a deck, and you don’t notify your insurance company about the remodel, your insurance company may not pay anything above your coverage limit, because of your failure to comply with the policy condition for GRC/ERC.

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