Eliminating Coverage Gaps: Does your home have “true” replacement coverage?

Imagine this: your home—your sanctuary—gone in an instant. A fire, a storm, or some other disaster reduces it to rubble. But you have insurance, right? So you file your claim, expecting to rebuild. Then comes the gut punch: your payout isn’t enough. Not even close.

This isn’t a hypothetical. It happens more often than you’d think. And it happens because many homeowners unknowingly fall into the coverage gap created by Extended Replacement Cost (ERC) policies. We see it all the time. Our job? To make sure it doesn’t happen to you.

How We Got Here: A Shift in Insurance Coverage

Once upon a time, most home insurance policies guaranteed to fully rebuild homes after a total loss, using materials of like kind and quality. But in the 1990s, mass-market insurers shifted gears. Instead of guaranteeing full rebuilding costs, they introduced Extended Replacement Cost (ERC) coverage. It sounds reassuring—until you look closer. ERC only covers a set percentage beyond the insured dwelling limit, which often falls 30% to 50% below the actual rebuilding cost.

Translation? Homeowners who think they’re covered may find themselves tens—or even hundreds—of thousands of dollars short when they need to rebuild.

The Hidden Danger of Underinsurance Research by Professor Kenneth Kline published in the Connecticut Insurance Law Journal spells it out:

• Three-quarters of homeowners are underinsured by tens of thousands of dollars.
• 60% of homeowners with Extended Replacement Cost (ERC) policies are still below their insurer’s estimated rebuilding cost.
• After major disasters, state insurance departments are flooded with complaints about underinsurance.

When disaster strikes, many homeowners are left scrambling—dipping into savings, taking out loans, or even walking away from their homes because rebuilding simply isn’t financially possible.

The Intelligent Choice: Guaranteed Rebuilding Coverage

Not every insurance company follows the mass-market playbook. Independent insurance agencies offer choice through agency’s such as Chubb, PURE, AIG, and Hanover offer Guaranteed Replacement Coverage (GRC). This means that no matter the cost, your home will be rebuilt using comparable materials and craftsmanship. No guesswork. No stress. No financial devastation.

But here’s what most homeowners don’t realize: the conversation about Guaranteed Replacement Coverage usually starts with a discussion about a few hundred—or maybe a few thousand—dollars in additional premium. It’s easy to fixate on that number. What gets overlooked? The real cost of being underinsured. The financial stability of your family. The ability to rebuild your life without compromise.

Insurance is the invisible product—until you need it. And when the moment comes, you’ll either be relieved you had the right coverage or wishing you had made a different choice. If an affluent family can afford extravagant vacations and luxury vehicles, wouldn’t it make sense to invest a little extra in their premium to ensure their home is fully protected? When it comes to safeguarding your most valuable asset, the right coverage isn’t an upgrade—it’s a necessity.

What You Can Do Right Now

1. Review Your Policy: If you have an Extended Replacement Cost (ERC) policy, find out what percentage of coverage is added and whether it truly reflects current construction costs.
2. Let Townley Kenton upgrade your protection to Guaranteed Rebuilding Coverage: If your insurer doesn’t offer this, it may be time to switch to one that does.

When It Comes to Protecting Your Home, “Enough” Insurance Is Often Not Enough.

Many homeowners assume their insurance will fully cover the cost of rebuilding their home after a disaster, only to find out too late that their policy falls short. This is often due to a reliance on Extended Replacement Cost (ERC) coverage, which provides only a percentage increase above the dwelling limit—often not enough to keep pace with real-world construction costs. Guaranteed Replacement Coverage, on the other hand, ensures that a home is fully rebuilt to its original quality, regardless of cost fluctuations. Understanding the difference between these two approaches can help homeowners make informed decisions and avoid unexpected financial burdens in the event of a loss.

Take a few minutes to review your policy. Ask about rebuilding cost accuracy. Make sure your coverage reflects today’s construction realities. Home insurance should be a safety net, not a gamble. The time to get it right is now—before you need it.

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