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Understanding Extended Replacement Cost: How it can help protect your property | Eagle Insurance

As a homeowner, protecting your investment is a top priority. Home insurance is an essential consideration that offers coverage for unexpected disasters and damages. However, not all policies are created equal, and there are different types of coverage that insurance companies offer. One of these is extended replacement cost coverage. Before diving into what extended replacement cost is, its important to understand what replacement cost is and why it matters so much.


Key Takeaways:

  • Home reconstruction costs often increase in the aftermath of natural disasters and during periods of inflation, which can leave homeowners underinsured, or without enough insurance to rebuild their home.

  • If your house is damaged and the cost to repair or rebuild it exceeds your policy's dwelling coverage limit, you may have to cover the remaining costs out of pocket to get your home back to its pre-disaster condition.

  • Extended replacement cost, also known as increased dwelling coverage and extended dwelling coverage, can help safeguard you from having to cover these excess costs yourself.

What is Replacement Cost?

Your home insurance policy's dwelling coverage limit is usually based on an estimate of how much it would cost to rebuild your house from the ground up at today's prices. Also known as home replacement cost, this amount is primarily a calculation of your home's square footage, construction style, and the cost of construction materials and labor in your area. This calculation is usually done using cost calculator tools provided by the insurance company, but it is important that you review this information and make the home characteristics used are accurate. Its essential to note that estimated replacement cost is different from the "market value" of your home as it is based off the cost to rebuild your home, not the current value of your home.

What is Extended Replacement Cost Coverage? (ERC)

Extended replacement cost is an insurance coverage option that provides you with a higher level of protection beyond the standard replacement cost coverage. ERC usually comes in the form of a percentage of additional dwelling coverage ranging from 25% all the way up to 100% in some instances. ERC coverage can help ensure that you are able to replace your property in the event of a total loss, even if the cost of rebuilding or replacing it has risen since you first purchased the policy.

How Does Extended Replacement Cost Coverage Work?

Extended replacement cost works by adding an extra layer of coverage on top of your existing dwelling coverage policy limits. It's typically available as an option under your insurance policy and can increase your coverage by a percentage of the amount of your policies dwelling coverage limit. For example, if you have a $500,000 dwelling limit on your policy, and purchase extended replacement coverage of 25%, your policy will cover your dwelling up to $625,000. Its important to note that each insurance company has different guidelines and rules around this coverage. Discuss with your agent for specifics.

Why Extended Replacement Cost Coverage Is Important

The cost to rebuild your home can fluctuate based on several factors, such as inflation, construction costs, and the fluctuating cost of materials. This means that over time, the cost of rebuilding your home can increase, making it necessary to have extended replacement cost coverage in case of unexpected high construction costs. While it might seem like extra coverage, extended replacement cost offers greater peace of mind and ensures that you have extra coverage to help rebuild in an unfortunate situation.

How Much Extended Replacement Cost Coverage Do You Need?

The amount of extended replacement coverage you need typically depends on your location, the age of your home, and other factors that determine the cost of rebuilding your home. For instance, homeowners in disaster-prone regions like tornadoes, hurricanes, or earthquakes may need to have a higher percentage of extended replacement cost in their policy, as the cost of construction materials and labor can be higher compared to other areas. It's essential to consult with your insurance agent to determine the appropriate percentage of extended replacement cost you need to cover any unforeseen costs.

How Much Does ERC Cost?

Typically you can add this for an additional $25-$75 annually depending on the percentage of extra coverage you choose. Some companies offer this coverage as a part of a package which can include some other optional coverages. Be sure to ask your agent about your options to include this in your policy.


Extended replacement cost coverage is an essential consideration for any homeowner who wants to protect their investment. It adds a layer of extra coverage that can give you peace of mind in the event of an unexpected disaster. It's essential to understand that extended replacement cost coverage is not included in standard coverage and must be added as an option. Therefore, homeowners should carefully evaluate their insurance needs and consult their insurance agent to determine the appropriate coverage limits to meet their needs and budget.


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