Extended Replacement Cost
Aside from having a life insurance policy to ensure one’s life, it is a must also that homeowners should secure an insurance that will secure their houses in case of major damages or losses may occur. Most insurance companies offer varied types of insurance policies for dwellings. And among these insurance policies, they also have different forms of coverage for dwelling.
One form of coverage dwelling is the Extended Replacement Cost. This is a type of dwelling insurance that has the maximum level of coverage. It pays the cost to build and put back together your home as it was after the damages or losses either caused by a disaster regardless of the limits of your policy. This will cover the amount of approximately 120 percent to 125 percent and has no percentage limits. When a disaster or certain calamities attacks your home and you need to reconstruct major damages with high demands on construction and materials beyond the normal cost in your dwelling place, extended replacement cost insurance policies will cater to cover the cost of the insured.
For instance, a typhoon came and your house was unfortunately blown away by the disaster and you need to rebuild your house. Once you have the extended replacement cost policy in your insurance, then you don’t have to worry because the cost will be insured by the policy. If you availed an insurance policy of $200,000, you can highly get of an extra coverage above your policy limit of about $40,000 or $45,000 depending on the agreement you have with your insurance company.
However if you want to upgrade your house aside from getting it back to its original form, you can ask for an add-on to your policy called Ordinance since this is another cost to be paid. Extended Replacement Cost will only cater for the rebuilding but not for upgrading your house.
Insurance companies sometimes provide their clients an actual cash or a replacement cost to home losses.But which is better between the two? To give you a clear concept of replacement cost coverage and an actual cash, let’s define them. An actual cash is a replacement amount minus depreciation. Take for example you bought bike for $1500 7 years ago but with depreciation you can have a 7 –yr-old bike worth $500. So your actual cash value is $500.
While in extended replacement cost is the cost of the item replaced at this very moment. Which means to say that the bike you purchased seven years ago would still cost you $1500. This clearly shows that the insurance company will produce funds to supply to you what you have lost of the same quantity but then again they will not secure for upgrading.
Once you have the extended replacement cost in your homeowners insurance policy, you should take in mind that you’ll be paying a higher premium since the company will pay out for a bigger coverage of your home in case of disaster.