Skip to Main Content
Ask NJM

What Is Guaranteed Replacement Cost?

Guaranteed Replacement Cost covers the cost to repair or replace your home after a covered loss, even if the cost exceeds your policy limit.

If your Dwelling coverage limit is too low, your policy might not cover the full cost of the damage.

Your insurance company may provide you with a replacement cost valuation for your home. When insured at this amount, you will be provided guaranteed replacement cost.

Replacement Cost is the amount to repair or replace a building after a loss.

Your home's estimated replacement cost factors in the use of similar kind and quality materials, labor, and equipment to rebuild your home today. It does not consider your home's market value, purchase price, or mortgage loan.

Your insurance company will be able to help you determine the estimated replacement cost of your home. You can check if you have guaranteed replacement cost by reviewing the Declarations Page of your policy.

How does guaranteed replacement cost work?

Guaranteed replacement cost is available for most homeowners (HO-3 and HO-5) and dwelling (DP-3) policies.

After a covered loss, this coverage will pay to repair or replace the home with materials of similar kind and quality and for like use. The payment is subject to limitations and exclusions.

For example:

Policy Without Guaranteed Replacement Cost

Coverage A - Dwelling Limit = $500,000

Cost for repairs
$600,000
Your Coverage A limit
This is the amount your insurer would pay.
-$500,000
Your out of pocket expense (including your deductible)
This is the amount you would pay.
=$100,000

Policy With Guaranteed Replacement Cost

Coverage A - Dwelling Limit = $500,000 (Replacement Cost)

Cost for repairs
$600,000
Your coverage with guaranteed replacement cost
This is the amount your insurer would pay.
-$600,000
Your deductible +$1,000
Your out of pocket expense (including your deductible)
This is the amount you would pay.
=$1,000

Why choose guaranteed replacement cost?

Guaranteed replacement cost gives you the peace of mind of knowing that you'll be covered if the unexpected strikes.

  • Your policy will provide coverage even if the cost of materials or labor increases over time.

  • You won't have to worry about being underinsured if you need to rebuild your home.

  • Some homeowners policies may cover improvements, alterations, or additions that increase the cost of the building by up to 5%. However, you should notify your insurance company within 30 days of completion of any work that increases the cost of the building by more than 5%.

The content on this page is intended for informational purposes only. It is not an insurance policy, and does not, in any way, replace or modify the definitions and information contained in individual insurance policies. Terms and coverage availability may vary by state, and exclusions and deductibles may apply. Discounts also vary by state and may not be applied to all policy coverages. Coverage for an accident or loss is subject to the terms and conditions of the insurance policy applicable to a particular claim.