Insurance Coverage Explained Fire Loss

Guaranteed Replacement Cost Insurance

February 8, 2022

Below is dialogue from a recent conversation discussing the value of Guaranteed Replacement Cost as part of your insurance program for your home.


Guaranteed Replacement Cost:

This important coverage closes the gap between your current policy limit on your home and the actual cost to repair or rebuild. After a loss you want to rebuild, Like, Kind and Quality. Proper coverage will protect you from rising costs that are out of your control.


Q&A Featuring:

Allan Degner, VP of Marketing and Jim Dunker, VP & Shareholder with Robertson Ryan & Associates.


Allan: Jim, thanks for taking a few minutes to share with us about a recent total fire loss your insured had. We know this is an absolutely traumatizing experience for anyone and met with unmatched stress. The time you spend helping walk your clients through protecting their home before a loss with the proper coverage and time after a loss educating them on how to navigate the return to normalcy is so very valuable.


Jim: It is my pleasure. I take my role as my clients most trusted advisor very seriously. Having the proper insurance coverage for your home can make all the difference in not taking a massive financial hit following a big claim like this. It is important for an insurance agent to meet and discuss coverages and truly get to know their client.  In this case, the client was a relatively new to Robertson Ryan. When I met with them to do a review of their insurance, I found that they had major gaps in their insurance coverage for their home.


Allan: What type of gaps are you talking about?


Jim: In this case one of the missing pieces was a Guarantee Replacement Cost endorsement on their home. This means that if the cost to rebuild their home to pre-loss condition exceeds their dwelling limit they would be responsible for the difference, down-grade finishes, or possibly build a smaller home. It is not a good situation to be caught in, especially when it is avoidable.


Allan: Is it common for the rebuild cost to exceed policy limits?


Jim: 36 years of experience has proved time and time again, no matter how hard we try, no matter how replacement cost calculations are made, in the case of a total loss, policy limits are rarely enough. Whether natural disasters putting stress on the local market or like what we see today, universal shortages and spikes in labor costs. Until the loss happens we will never really know the final cost to rebuild.


Allan: As I understand it, shortly after you helped this new client and wrote the Guaranteed Replacement Cost endorsement in their policy, they needed it.


Jim: Correct, the client had a fire and their home was called a total loss by the insurance carrier, meaning it could not be restored and would have to be completely rebuilt. The policy they had before working with my team, would not have been sufficient coverage to rebuild their home. The policy had a 20% replacement cost cap on it, so the client would only have been paid out $330,000. With the Guaranteed Replacement Cost coverage we helped them secure, they received the full $464,000 it took to rebuild their home to pre-loss condition.


Allan: Wow, so they would have been on the hook for the $134,000 deficit, or had to substantially down-grade their home. Why do some insurance agents choose not to include this in their policy?


Jim: Some agents sell strictly on price, which is really confusing and a terrible injustice to clients. Shaving $25 here, and $50 there, by not including valuable coverages can really put customers in harm’s way when it comes to submitting a claim. Unfortunately, they don’t know until they go to file a claim, or hopefully meet with an agent like myself who can help  uncover the missing coverage. There is coverage and there is price. My job is to balance the two. A cheap policy will get really expensive when a loss is not properly covered.


Notes: There are a variety different endorsement coverages available and each carrier and coverage is a little different. One may also want consider Replacement Cost or Extended Replacement Cost. Having an Actual Cash Value policy is not usually the best option. It is important to consult with a licensed insurance professional to discuss what coverage options may be best for you and your home. Our team of Trusted Advisors at Robertson Ryan stand ready to help.