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Now that we have an idea of how much insurance coverage first-time homebuyers need (as explained in our previous video), it’s time to discuss an important part in this coverage: extended replacement cost.

Extended replacement cost is an extra amount of coverage your insurance company provides to help you rebuild your home after a loss. It’s there in case the cost to rebuild your home surpasses the estimated amount. Sometimes, you never know what a rebuild is going to cost until the last nail is hammered down.

When your policy has an extended replacement cost endorsement, it’s defined as a percentage amount. If your policy states that your home is insured for $600,000 and your extended replacement cost is 25%, for example, your insurance company will allow another $150,000 to get the job done if the rebuild costs more than $600,000.


Usually, insurance companies let you choose who you want to rebuild your property, but they won’t give you more money than what’s stated in the contract.

What if contractors offer a bid to rebuild your home that’s more than the amount provided in your policy? In that case, you may have to come up with the extra amount yourself to cover the cost. Usually, insurance companies let you choose who you want to rebuild your property, but they won’t give you more money than what’s stated in the contract.

So, if a contractor offers you a quote for $800,000, you may have to come up with that extra $200,000 yourself if you don’t have that 25% extended replacement cost. If you do have it, the extra amount would only be $50,000. Your insurance company will likely take a look at whichever offer you decide on just to make sure the proposal makes sense.  

Essentially, extended replacement cost brings peace of mind to homebuyers. Not all companies offer it, though, so make sure you talk to your insurance company to find out whether they do or not.

Stay tuned for our next video where we discuss building ordinances. In the meantime, if you have any questions about this topic, don’t hesitate to reach out to me. I’d love to speak with you.  

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