Home Insurance Forum

Are home replacement cost guarantee and building structure reimbursement the same?

Michelle, New York

Dear Michelle,

The short answer to your question is no, guaranteed replacement cost and building structure reimbursement are not the same. However, they are related. Both are coverage options for homeowners insurance, and both can come in handy when disaster strikes.

"Guaranteed replacement cost" is a common type of homeowners insurance coverage. If your home and/or possessions are destroyed in an incident that's covered under your policy — such as a fire — guaranteed replacement cost coverage would pay to replace whatever is destroyed. The other common coverage option is "actual cash value," which pays only the depreciated value for any damaged or destroyed property.

Here's a good example of the difference. Say you bought a television five years ago and it is destroyed in a fire. The actual cash value of that television might be $100 now, but the replacement cost would be more like $500. How much your insurance company would pay out depends on whether you chose actual cash value or guaranteed replacement.

Which brings us to "building structure reimbursement." According to the Insurance Information Institute, some homeowners insurance policies offer replacement coverage for the house only, not its contents. So, if your home is destroyed by a fire, insurance would reimburse you for the cost of rebuilding the structure, but not for the carpeting, appliances, furniture, or any other personal possessions. If your home is partially damaged, the policy would provide money only for structural repairs. You would have to foot the bill for any damage to the contents of your home.

Regardless of which type of coverage you opt for, insurance experts recommend that you insure your home for its full value, and notify your insurance company if home-building costs take a steep climb, or if you make any improvement to the home, which increases its value. Many insurance companies set a cap on how much they will reimburse a homeowner for, and typically that cap is set at 120 percent of the insured value. So, even with guaranteed replacement cost or building structure reimbursement coverage, if your home is insured for $50,000, your insurance company will not pay more than $60,000 to rebuild it.

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