THE COST OF REBUILDING
If a catastrophe were to render your home a total loss, your homeowners policy would pay up to the dwelling limit. If that amount is less than the cost to rebuild your home, you would be responsible for making up the difference. Your insurance agent can estimate the cost of rebuilding. This estimate is very important because most insurers require that you have a policy with a dwelling limit of 80 percent or more of the insurer-estimated cost to rebuild in order to get full replacement cost for partial losses. It is also essential to include an inflation guard clause that is tied to regional costs, which adjusts your coverage annually. An “extended replacement cost” endorsement is also recommended.
NOTE: An extended replacement cost endorsement provides coverage that exceeds the insured value, ideally for 20% to 25% above the dwelling limit.