What Is Guaranteed Replacement Cost in Home Insurance?

If you're new to the world of insurance, then you're probably well aware that it can be incredibly confusing, particularly when it comes to home insurance. There are several different types of coverage options, terms, and requirements that you should familiarize yourself with before committing to an insurance policy.

As one of the top-rated insurance brokerages in Canada, we receive a number of questions from concerned or confused policyholders. One of the things that we receive a lot of questions about is the guaranteed replacement cost endorsement.

Whether you're shopping for your first home insurance policy or have been insured for years, you should take a moment to learn what this type of coverage is and how it works. 

Today's article will teach you everything you need to know about the guaranteed replacement cost endorsement, why it's important, and how you can add it to your policy. We'll also go over some of the important (but lesser-known) requirements that you should take into consideration.

Want to get started? Continue reading to learn more.

What is a guaranteed replacement cost insurance endorsement? — An expert guide

As a homeowner, protecting your property from unexpected events is most likely at the top of your priority list; that's why you purchased home insurance in the first place!

But what happens if the damage from an unexpected event exceeds the coverage limits listed on your home insurance policy? This is where guaranteed replacement cost home insurance comes into play.

When you add this type of endorsement to your policy, it will cover the replacement cost of your home (without reductions for depreciation) if it gets damaged by an unforeseen, covered event and the damage exceeds your coverage limits. 

Adding this endorsement to your policy is incredibly beneficial, as it can be difficult to accurately estimate the replacement value of your home while factoring in reductions for depreciation, especially if you've made renovations to your home within the past few years.

Insurance for guaranteed replacement cost vs. replacement cost — What's the difference?

The guaranteed property replacement cost endorsement is an add-on that you can add to your policy. Replacement cost is a term that indicates how much it would cost to replace your home after an unexpected event destroys it.

If you don't have the home insurance guaranteed replacement cost endorsement, the amount you'll receive can be reduced for depreciation.

What does this mean?

All in all, if the replacement cost that you receive is less than the actual amount it takes to replace your home, and you don't have guaranteed replacement cost coverage, you'll have to pay for the remainder out of your own pocket. But, if you do have guaranteed property replacement cost coverage, your insurance company will cover the additional expenses.

So, even though these two terms are different, it's clear that they have a direct impact on one another.

What are the requirements for guaranteed replacement cost home insurance in Canada?

Before adding an insurance endorsement to your policy, you need to ensure that you meet the requirements. If you don't do your due diligence and take the time to learn about the requirements, you may go through the process only to learn that you don't qualify!

In order to make use of guaranteed replacement cost coverage, you’re contractually obligated to meet the following requirements:

1. You're able to maintain a coverage amount that is equal to (or greater than) 100% of the cost of the dwelling's replacement cost as determined by an insurance replacement cost calculator.
2. You're able to maintain a coverage amount that isn't reduced from the amount procured from the valuation program.

Additionally, policyholders should note that some insurance companies add a "same site requirement" as a stipulation to the endorsement. If your policy has a "same site requirement," then you have to rebuild the property in the same location. Be sure to keep this in mind if you're on the fence about adding guaranteed replacement cost coverage to your home insurance policy.

Please note that the dwelling replacement cost is not the real estate value of the home. It is based on how much it would cost to rebuild the home.

Do home improvements affect replacement costs?

Are you thinking about installing a new segment in your home? Have you and your significant other been talking about renovating your basement? Then you may be wondering if these types of improvements will have any impact on the replacement cost of your home.  

Yes, home improvements have a direct impact on the cost of your property, so they affect the overall replacement cost of a property.

If you're planning on renovating your home beyond cosmetic changes (adding an expansion, addition, overall improvements, etc.), you need to contact your home insurance broker before beginning the project.  They will be able to advise on if your current policy remains adequate or if another option is required during the project.

Should you choose not to notify your home insurance company, they won't have up-to-date data on the replacement cost of your home. In turn, if something were to happen, you may not receive the entire replacement cost of your property or if the project was large and undisclosed, the policy may not respond at all and be canceled for material change of risk.

How can you add guaranteed replacement cost coverage to your home insurance policy?

The easiest way to add guaranteed property replacement cost coverage (or any type of endorsement) to your home insurance policy is by contacting an insurance advisor (also commonly referred to as an insurance broker). They will be able to tell you what the requirements are for you to have this coverage and find a company that you fit with (there are lots of reasons why a home may not qualify for guaranteed replacement cost, including having an older roof, wiring or plumbing).

Insurance advisors work with home insurance companies and policyholders. When you team up with an insurance advisor, you can compare quotes from all of the providers that they work with at once. Doing this is considerably more efficient than contacting individual insurance agents.

Insurance advisors are happy to help you compare insurance quotes until you've found the ideal option for you and your property.

If you're not currently working with an insurance advisor, you should consider teaming up with one of our talented, experienced team members at Surex.

Save as much as 25% when you bundle with a Surex insurance provider

At Surex, our number one goal is to help policyholders find affordable insurance without skimping on quality. Whether you need help comparing insurance quotes or have questions about your policy, your Surex insurance advisor is here to help.

Contact us today to start comparing the best insurance quotes in ten minutes or less!