What Does Extended Replacement Cost Mean on a Homeowners Policy?

Tornado Damage

With the recent damage caused by the tornadoes in parts of Middle Tennessee earlier this month, people are taking a closer look at their home insurance policies. One coverage that becomes super important during an event such as this is extended replacement cost coverage. Let’s dive into why this optional coverage is so important.

What is Extended Replacement Cost Coverage?

Extended Replacement Cost coverage is an optional endorsement that provides additional payment for the rebuilding of your home over and above your Coverage A: Dwelling limit. This is usually a percentage of that limit, such as 10%, 25%, or 50%. For example, if you have a Coverage A: Dwelling limit of $200,000 and your extended replacement cost coverage is 25%, you will have an additional $50,000 to rebuild your home should it cost more than $200,000. 

Do I Need Extended Replacement Cost Coverage?

You would think…”If I need more coverage, why don’t you just increase my dwelling amount?”


That makes sense, however it is not as simple as just raising the limit. When your agent completes your homeowners insurance quote, they will normally complete a replacement cost estimator. This is what the insurance company will use as the basis for your Coverage A amount. Your replacement cost estimator is completed with normal reconstruction costs in mind – i.e. not after a natural disaster. After a natural disaster, construction costs skyrocket due to labor and material shortages. This is when your extended replacement cost coverage is important. It gives you that additional protection so that you are not responsible for the charges should your home cost more to build than estimated.

What is the Difference Between Extended Replacement Cost and Guaranteed Replacement Cost?

Some insurance companies will offer guaranteed replacement cost coverage on your dwelling. This means that no matter what it costs to rebuild your home to the way it was before the claim, the insurance company will cover the costs 100%. This coverage is very expensive as it does not cap the insurance company’s liability. Because of this, very few carriers will even offer this option.


In contrast, extended replacement cost coverage does provide a limit to coverage. This makes it a cost-effective alternative to guaranteed replacement cost coverage.

How Much is Extended Replacement Cost Coverage?

It is impossible to pinpoint an exact price of extended replacement cost coverage as there are so many factors in play. The price of extended replacement cost coverage will be dependent on several factors that could include the location of the property, the amount of dwelling coverage, and personal details of the insured such as loss history or credit. 

Extended replacement cost will always be less than guaranteed replacement cost coverage.

If you have questions about extended replacement cost coverage or any other parts of your homeowners insurance policy, we would be happy to help you! If you are looking for a new policy, we will shop your rate with multiple carriers to make sure you are getting the best home insurance. Give us a call at 615-919-1009 or click below to contact us today. We look forward to serving you!