UPDATED FEBRUARY 2024
What is guaranteed replacement cost? Guaranteed replacement cost is sometimes called HO-5, which is different from the standard comprehensive insurance policy that is typically known as HO-3. Let’s take a closer look at these. Remember, you can reach out to Peterson Insurance for help navigating these decisions at any time.
An HO-5 Guaranteed Replacement Cost policy provides more Dwelling coverage/ rebuilding cost coverage to your home than an HO-3 policy. An HO-5 provides a no cap dollar limit over the estimated dwelling value aka cost to rebuild limit on your policy, in the event of a total or large loss. An HO-3 policy will provide rebuilding cost only up to the dwelling coverage limit on your policy. In some cases an HO-3 policy may also provide a buffer amount over the dwelling limit for a certain set percentage (the most typical being an extra 25% or 50% but these must be chosen as additional options). So this means that if you have a total or large loss and it takes more to repair or rebuild your house at the time of loss than the estimated amount of coverage the company has on your policy, you would have to pay out of pocket for the additional costs.
An HO-5 Guaranteed Replacement cost has a no cap limit to how much will pay out at the time of loss. This will ensure that you have enough coverage to repair or rebuild your house if the estimated coverage on your policy is not enough when something happens. That is important more than ever today due to rising inflation costs for materials and contractors!
Keep in mind that an HO-4 refers to renters insurance if you are renting an apartment or house and are in need of coverage for your belongings, liability and loss of use. An HO-6 is referring to condo insurance, if you own your own condo unit.
What is guaranteed replacement cost homeowners insurance worth to you? Not all companies offer it, and those that do offer it do so because it provides an exceptional level of support for the property owner. It is a very valuable investment in many situations. Peterson Insurance proudly writes with several A+ rated carriers who offer Guaranteed Replacement Cost, such as Erie Insurance. Call today for more information!
Standard Option and Extended Replacement Cost
As you consider replacement costs, know that this type of insurance has multiple forms as mentioned above. The standard option that is more commonly available with replacement cost is coverage only up to the dwelling amount on your policy or with extended coverage, which is typically 25% to 50% over rebuilding replacement coverage on a home insurance policy.
For example, if your home has a fire and the property must be leveled and rebuilt, an extended policy will cover the cost to rebuild (up to the dwelling limit shown on your policy) and then up to 25% or 50% more for an extended replacement cost option if chosen.
Guaranteed or Extended coverage is always recommended so you have a buffer in case it costs more to rebuild than originally anticipated. Years ago, if the standard insurance policy was up to date and adequate for covering the rebuilding of the property, if it were to be a full loss, it may not have been necessary to get extra coverage. However today, where the cost of rebuilding continues to rise year after year, this added protection is critical to ensure proper coverage with a large loss.
Replacement Costs Do Not Eliminate All Risks
As you consider your options and the benefit of guaranteed replacement cost, keep in mind that this component of your policy describes how much coverage you have and when it applies. It does not mean that all types of perils (causes of loss) are included.
While it’s important to understand that general homeowners insurance isn’t a catch-all solution for every risk, adding specific endorsements to your policy can significantly reduce your vulnerability in certain areas. This includes specialized coverage like earthquake insurance or underground service line protection or extended flood water coverage with Erie Insurance. It’s wise to consider the benefits of obtaining adequate coverage that addresses these additional risks. Peterson Insurance proudly writes with Erie Insurance who offers an HO-5 Guaranteed Replacement Cost policy with Comprehensive Perils coverage.
For a complete picture of your options, getting a quick quote that encompasses all potential coverage types is a smart move. Additionally, reaching out to Peterson Insurance can provide you with expert guidance in selecting a plan that best suits your unique needs.
