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.