Additional Replacement Cost Protection Coverage Explained

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Brady Klopfer · Writer · Oct 19, 2020
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    Homeowners insurance policies can be daunting because they have so many options, add-ons, and unfamiliar terms. Still, any time you purchase a home insurance policy it’s important to know exactly what you’re getting. How can you know if it’s the right coverage for your property if you don’t know what it is?
    One such option that you should know about is additional replacement cost protection coverage. That’s quite a mouthful, right? But don’t worry, you don’t need to remember the name. You just need to figure out if it’s right for you. So read on to find out everything you need to know about additional replacement cost protection coverage.

    What is additional replacement cost protection coverage?

    When you purchase homeowners insurance, you receive a lot of different types of coverage. Far and away the most important element of your policy is your dwelling coverage. Dwelling coverage is what covers the cost of your home should it need to be repaired or rebuilt.
    Dwelling coverage has a limit. In general, that limit is the estimated cost of rebuilding your home. That way, whatever happens to your home, your dwelling coverage should, in theory, cover the cost of repairing or rebuilding.
    But that doesn’t always end up being the case, and that’s where additional replacement cost protection coverage kicks in. This type of coverage provides you with an additional amount of money to cover rebuilding or repair costs for your home. In general, the provided coverage is an additional 10 to 25 percent of the dwelling coverage.
    So, for example, if you have 20 percent additional replacement cost protection coverage on a plan with $400,000 of dwelling coverage, then you’ll be covered up to $480,000 in rebuilding costs.

    Why do you need additional replacement cost protection coverage?

    In theory, dwelling coverage covers the entire cost of rebuilding your home. But that’s just based on the estimate at the time of your policy. Over time, the cost of rebuilding can grow.
    This is most commonly seen when there’s a natural disaster, such as a flood, and lots of houses are all ruined at the same time. That demand for rebuilding houses often means that supplies and labor are more expensive than under a normal scenario, and that can quickly cause your rebuilding costs to exceed your dwelling coverage. It can also happen if the materials used on your home unexpectedly rise in price due to scarcity or trendiness.
    Dwelling coverage doesn’t actually cover the cost of rebuilding your home, but rather the expected cost. If products or labor are more expensive than expected, additional replacement cost protection coverage can really help you out.

    What does additional replacement cost protection coverage cost?

    Additional replacement cost protection coverage is a relatively affordable insurance add-on. It usually costs between $25 and $75 a year to add it to your homeowners insurance policy.

    Do you need additional replacement cost protection coverage?

    Many people don’t elect to have additional replacement cost protection coverage from their insurance company, because it is rarely needed. However, when it is needed, it can save you tens of thousands of dollars on a covered loss. It can be a good type of replacement cost coverage for people who live in areas that have a lot of natural disasters, and it can be very helpful to people who live paycheck to paycheck. Spending a few extra dollars a month on insurance may be doable, but having a worst case scenario of a few tens of thousands of dollars in repair costs may not.
    Additional replacement cost protection coverage isn’t right for everyone, but depending on your situation and your home, it might be just what you need for your homeowners insurance policy.
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