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If your home needs to be completely rebuilt after a natural disaster, the last thing you want to hear is that your insurance won't cover the full cost. So how can you avoid this? Well, there are two options available to people who want to sidestep this problem: extended and guaranteed replacement cost coverage. These types of homeowners insurance policies account for inflation, changes in property values, and cost of construction materials and labor at the time of rebuilding.
Extended replacement cost coverage will pay up to a preset amount above the policy limit to rebuild a damaged or destroyed home. Usually it is not more than 120 to 125 percent. Guaranteed replacement cost coverage has no limits, so you will not be held to a specific preset figure.
These policies are primarily beneficial to victims of major natural disasters like earthquakes or hurricanes because the sudden increase in labor and materials can drive prices up.