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Guaranteed Replacement Cost

Guaranteed Replacement Cost

Definition

Guaranteed Replacement Cost — a property insurance valuation option found in some homeowners policies. The policy pays the full cost of replacing the home even if this amount exceeds the policy limits. This valuation method fully indemnifies the insured without any depreciation and without a maximum reconstruction payment. The provision helps the insured avoid being underinsured in the event of a total loss. An important caveat typically applies to this provision—the home owner must allow the insurer to set the replacement cost and automatically increase it as needed. Note that guaranteed replacement cost coverage approaches can vary by state and are not available in every state or from every insurer.

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