Replacement Cost

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When you buy basic homeowners insurance, you typically receive actual cash value on both the structure and the contents (furniture, clothes, appliances, etc.). For an additional premium, you can purchase replacement cost coverage on the structure and the contents. Replacement cost insurance means you should theoretically receive enough money to buy a new replacement for what was lost. However, even though replacement cost is better coverage than actual cash value, replacement cost is often not enough, as there will be a limit on the amount you can recover (see Limit [of Insurance]). For this reason, a further enhanced coverage can be bought for the structure, called extended replacement cost. This increases the amount of insurance available by around 20-30 percent. Finally, if you think extended replacement cost coverage may not be enough, you can sometimes get guaranteed replacement cost coverage on the structure, which should pay you whatever is needed to rebuild the house. Here is a comparison of different coverage options that might be offered under homeowners insurance (however, not every insurance company may offer every option): Minimum coverage: actual cash value Better: replacement cost Better still: extended replacement cost The best: guaranteed replacement cost