A house is the single largest investment most people ever make, which makes it a key component of their financial portfolio. For that reason, it is crucial that any homeowners policy in effect will do what it is intended to do: cover the cost of replacing a home if it is destroyed or damaged beyond repair. Adding guaranteed replacement coverage to your policy helps ensure this.

Purchase Price vs. House Value

When you bought your house, you probably had an appraisal done. For many homeowners, that is the last time — at least for a while — they think about the home’s value. However, markets can fluctuate and, over time, house values have historically increased. In some areas, prices have doubled or tripled in a very short timeframe. If your insurance policy is based on the purchase price, you may not have enough coverage to cover the current market value.

Variable Construction Costs

Construction costs are not stagnant. They rise and fall with the rest of the market. Consequently, a rebuilding estimate from five years ago may be completely off the mark today. If your policy is based on an old estimate, you may not have enough coverage to rebuild. Increased demand and reduced supply after a major disaster and rising employment costs in construction trades are just a few of the things that tend to affect construction costs.

Guaranteed replacement coverage fills the gap between your standard policy’s limits and the actual cost to rebuild. With it, you won’t have to worry about rising construction costs or increasing home values.