Extended replacement cost coverage is an endorsement that will help cover the cost of rebuilding your house if the cost goes over your ‘limit’. So let’s say your Coverage A, your dwelling coverage, is $250,000. If your house is completely destroyed, that is the most the insurance company will pay to rebuild the house itself. That doesn’t include your personal property, other structures, etc.
So if it ends up costing more than that to rebuild, you would have to pay the difference out of pocket. The endorsement is usually an extra percentage they agree to go over the limit. So if you had an extended replacement cost endorsement of 25% on your theoretical $250,000 house, then the insurance company would actually pay up to $312,500.
Where this can really help is if there is a large storm in your area, and a lot of people around you are also trying to rebuild, it could drive the cost of materials up. Make sure you’re properly covered by getting a free quote.
Should I have extended replacement cost coverage?
If your carrier offers it, I wouldmost likely add it because it is usually very inexpensive. I wouldn’t let the availability of this endorsement be a deal breaker though. The most important thing is to make sure that you are not underinsured and you do in fact have enough coverage to rebuild your house.