Guaranteed Replacement Cost coverage permits the rebuild or replacement of an insured property even if the loss exceeds policy limits.
Policies often default to cover the estimated value of the property at the time of appraisal. This is commonly referred to as “Actual Cash Value”. In basic terms, this coverage would replace a 15-year-old house with the value of a 15-year-old house.
Guaranteed Replacement Cost would replace a 15-year-old house with the same specifications as the 15-year-old house, however does not consider depreciation.
Let’s think of it in terms of a television. A 10-year-old 55” LCD Sony TV gets stolen.
Actual Cash Value: the payment of the claim will provide the value of a 10-year-old 55” LCD Sony TV ($283 to $295 according to Gadget Value)
Replacement Cost: the payment of the claim will provide the value of a 55” LCD Sony TV at today’s prices ($999.99 according to Sony)
This is nearly a 30% increase in the replacement value of the claim! Consider the same if your entire home was destroyed. The cost of rebuilding a home with an appraised value of $500,000, including materials and labour, would likely be considerably more.
Remember, what you could sell your home for is not necessarily the cost it would be to rebuild it.
Factors that Determine Replacement Cost
Reconstruction costs are often more because contractors are only building one home at a time, as opposed to a group of homes.
- Demolition and removing damaged debris.
- New requirements for building codes (ex. energy efficiency).
- Advice from experts such as engineers, asbestos removal, etc.
- Replacement of any special features or decorative components.
- Added costs for “rush” orders.
- For partial reconstructions, ensuring the non-damaged property and the repaired property is often more expensive.
To confirm your property insurance policy includes Replacement Cost, contact your broker and review your policy.
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