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Extended Replacement Cost Explained

What is Extended Replacement Cost (Homeowner’s Insurance) 

Extended Replacement Cost is an additional coverage option on your homeowner’s insurance. If your home is damaged, extended replacement cost provides coverage for your home to be rebuilt or repaired to its condition before the damage, even if if the cost to replace the house itself is more.

Who Should Consider Getting Extended Replacement Cost

The primary purpose of the option is to protect yourself against sudden increases in materials or construction costs; this can occur when numerous claims are made in an area. If you live in an area that is prone to natural disasters like hurricanes and earthquakes, extended replacement cost may be a great option to consider.

Extended Replacement Cost coverage generally provides an additional 120-125% above your policy limit to replace your home. If you insure your home for $200,000, this gives you $250,000 if you need it. 

Using the funds to repair another home

Additionally, if you are choosing not to rebuild and you decide to purchase a replacement home, you can buy another home that needs repairs. You can use the funds from your replacement coverage to bring the house back into a liveable condition. 

Final takeaway

Not all homeowners’ policies offer Extended Replacement Cost coverage. Make sure to speak with your insurance agent or your loan officer to discuss your options to ensure you have the right amount of coverage– not too much and not underinsured. 

Updated on April 17, 2020

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