What is Extended Replacement Cost?

This endorsement means that an insurance company will pay a certain percentage above the property insurance coverage if the coverage amount is not enough to rebuild a like-kind structure. Estimating the cost to rebuild a property is in inexact science and has a decent margin for error, so to protect against this insurance companies will typically offer an Extended Replacement Cost endorsement on homeowners policies, and sometimes on policies for commercial buildings as well. Say, for example, you have a home with a dwelling coverage of $500,00 and 150% extended replacement cost. This means that the carrier will pay up to 150% of $500,000 in order to build a like-kind home after a covered claim. In this scenario the total dwelling coverage provided by the policy would be $750,000 ($500k x 150%).

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