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What is Guaranteed Replacement Cost?

Make sure you have Guaranteed Replacement Cost on your homeowner's insurance policy

There are few things in life worse than losing your home to fire or a natural disaster.

Except, that is, discovering in the aftermath that you don’t have enough homeowners insurance coverage to rebuild the house back to the way it was before trouble struck. When it rains.. it pours.

If you get guaranteed replacement cost coverage, that is unlikely to happen. Why? Because guaranteed replacement cost will pay for the full cost of rebuilding your house back to its previous size and specifications – right down to the granite countertops, custom bookshelves, golf simulator in the man cave, and gleaming hardwood floors that you so love.

Why Should I Consider Guaranteed Replacement Cost?

“Guaranteed replacement cost gives you peace of mind,” says Nate Stymiest, founder of NS Insurance. “The reality is that it’s almost impossible to guess what it’s going to cost to rebuild a home in Wisconsin at the exact time of loss, but we take that worry away from you with this homeowners insurance coverage.”

With the everchanging price of building materials and labor, it’s easy to see why Guaranteed Replacement Cost is the gold standard for homeowners insurance.

Replacement Cost vs. Market Value: What’s the Difference? 

When you purchase a home and start thinking about protecting your investment, this is often the first question. The answer is often: More than you just paid for it.

“People naturally gravitate to how much they paid for the house because of information publically available on sites like,, etc, but we’re not insuring it to buy it from you – we’re insuring it to rebuild it in case something happens,” Stymiest says. “The question you need to be asking is, ‘How much would it cost if a builder needs to rebuild it?”

This is why replacement cost is often more than market value for your home, or even what you might be able to sell it for.

Figuring out rebuilding costs can be elusive, as a range of factors contribute to what that actual cost might be. Guaranteed replacement cost takes the guesswork out, assuring that you’re covered – even if you need to rebuild your entire home.

What are Loss Settlement Options in Homeowners Insurance?

Guaranteed replacement cost is one of a range of choices – called “loss settlement options” in the business – which insurance companies offer to homeowners.

Common loss settlement options include:

  • Replacement cost
  • Extended replacement cost
  • Actual cash value
  • Guaranteed replacement cost

Each one works a little bit differently. Different insurance companies offer different things, too, which is why it is a good idea to have an independent insurance agent working on your behalf.

Here’s a breakdown of some of those key differences:

Replacement Cost vs. Guaranteed Replacement Cost

That one word – guaranteed – makes a big difference if you’re facing a total loss of your home. Here’s what makes replacement cost different from guaranteed replacement cost.

  • What is replacement cost? When you’re issued a policy with just replacement cost, the insurance company works with you to project how much it would likely cost to fully replace your home. You can see the replacement cost and the specific limit for your policy on your declarations page. Replacement cost is provided up to the limit shown on the declarations page.
  • What to expect with replacement cost: The replacement cost amount usually gets increased annually – normally by 2 to 5%each year, depending on your area. In periods of high inflation, the increase could be much higher.

Here’s the big difference: If your home is destroyed and a builder actually estimates that the cost to rebuild is more than that replacement cost figure… then you, as the homeowner, are responsible to make up the difference. That’s why it’s important as a homeowner to make sure you know and are comfortable with how much your home is insured for.

  • Here’s an example: If your home is insured at a replacement cost of $250,000, and in reality it is going to cost $300,000 to rebuild, then you either need to come up with an additional $50,000 or find ways to reduce costs… which could result in a smaller, less-appointed house than you originally had.

The premium amount you pay for replacement cost compared to guaranteed replacement cost is typically about the same, although some factors unique to your situation may make one or the other more expensive.

Extended Replacement Cost vs. Guaranteed Replacement Cost

Think of extended replacement cost like a predetermined amount of cash you can dip into in case the cost to rebuild runs high. Still, it’s not the same as guaranteed replacement cost. Here’s how it works:

  • What is extended replacement cost? With extended replacement cost, your insurance company assures that a financial cushion exists in the event that cost of rebuilding is more than the estimated replacement cost.
  • What to expect with extended replacement cost: Specifically with Erie Insurance, that cushion is 25 percent above the dwelling amount, as shown on your declarations page.

While 25% may seem like a lot, there are often circumstances that cause costs to soar well beyond that.

“When a tornado does a lot of damage in a specific area, or if there major winter storm that rolls through Wisconsin, the cost to rebuild skyrockets,” Stymiest says. “Everyone is trying to rebuild, and the cost of lumber, labor and building supplies all go up. If you don’t have the right coverage, you are not going to have enough to rebuild.”

  • Here’s an example: For a home insured at $300,000, extended replacement cost would give you an extra $75,000 to work with. Yet again, if costs go beyond that extra $75,000… you are on the hook to make up the difference, or rebuild a smaller home.

Premium costs for extended replacement cost are generally comparable to guaranteed replacement cost, although some factors unique to your situation may make one or the other more expensive.

Actual Cash Value vs. Guaranteed Replacement Cost

In simple terms, actual cash value is basic coverage. While there’s no doubt that actual cash value is typically your least expensive option, there is also truth in the old saying, you get what you pay for.

  • What is actual cash value? With actual cash value, you get coverage for a pre-determined set amount to rebuild your home after a covered loss… and no more. Compared to guaranteed replacement cost, actual cash value often offers the least attractive option as you will likely be required to pay out-of-pocket costs if you aim to restore your home to its previous design and condition.
  • What to expect with actual cash value: Some policies also factor in depreciation of things such as an aging roof – so you may end up with even less than the policy states.

Of course, the ideal scenario is that you will never need to use guaranteed replacement cost coverage. Yet, if you do need it, you can rest assured that guaranteed replacement cost coverage will provide the money necessary to rebuild without requiring you to shell out additional cash.

“If it’s a covered loss and costs run high, we will set the policy up to pay whatever the difference is,” Stymiest says. “It’s on us, not you.”

Good news for NS customers: Guaranteed replacement cost is included in our most of our base homeowners insurance policies, a feature that will cost you extra with most other insurance options.

Upgrading your homeowners insurance to include guaranteed replacement cost is simple. Let’s connect!

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