What is the definition of Guaranteed Replacement Cost Coverage?

A Guaranteed Replacement Cost Coverage is an option to add in a property insurance policy. It provides payment for the full cost of repairing or replacing whatever damage the insured property incurs. The insurance company is obligated to give the full and current cost of the destroyed or damaged property, even when the cost is already beyond the stated policy limit.

Using this kind of coverage, there is no deductions for depreciation when the cost of replacement is being computed. This protects the insured from the possibility that the cost of rebuilding a home or replacing some of its parts will be more expensive now than in the past, due to inflation, as well as the changes in labor costs. During times of calamity, or when an event damages a lot of houses or property in a certain area, contractor's cost and materials costs are bound to increase.

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