Guaranteed Replacement Insurance Answer

What is guaranteed replacement cost? The insurer's provide information to their brokers or agents in order to determine the full reconstruction cost of the dwelling. These forms include information such as the year the house was built, style of dwelling, square feet, type of roof and outside wall covering. Then the information goes into great detail about the interior of the home. The ceilings, floor coverings, number of bathrooms, fireplaces, garage information, decks, porches, specialty windows, doors, etc. are all detailed.

When those insurers' provided forms are used, the house is insured to what the insurance company considers to be the "full replacement" cost of the house, no depreciation, and full inflation protection if the house is increased in value. This home will be rebuilt even if it costs more at the time to match the details of construction provided in the replacement cost calculations. This applies to repairing, constructing or reconstructing the property. This is an endorsement that adds coverage to the policy.

Example: When housing prices have increased and while the land value has no effect on the policies, the full replacement cost of the structure itself is still covered. This will be important as the economy recovers. You should expect an automatic increase on renewal as the insurance companies will usually add about 8% a year to the home value. These calculations will need to be done every few years in order to keep the Guaranteed Replacement Cost endorsement on the policy.

Some companies are now advising that you need to contact the insurance company if you do any improvement, remodelling, extension, alteration or addition to your home that will increase your replacement cost by more than $10,000. For you to keep your guaranteed replacement cost you must notify the insurance company within 30 days of the start of the work.

Some examples of changes that you should notify your broker about as they may increase the value of your home by more than $10,000:

  • Building or expanding a deck.
  • Adding a suite for the in-laws.
  • Adding a level or story to the home.
  • Adding a solarium.
  • Removing or knocking out walls.
  • Finishing or refinishing your basement.
  • Installing cabinetry or high-end countertops (granite would be an example).
  • Upgrading the flooring.
  • Renovating your kitchen or bathroom.

You need to talk to your agent or broker if you have any questions. Your home is one of your greatest assets. Make sure that you have the correct coverage to protect you from a huge financial hit.