Does Guaranteed Replacement Cost Protect Your Home in the Event of Disaster?

Three Ottawa area families recently sued Desjardins insurance. At issue was the company's proposed settlements under a "guaranteed replacement cost" provision. The families' homes were destroyed by a tornado, but the payouts were $150,000-$250,000 less than what the policyholders claimed was necessary to rebuild. The insurer's estimates differed from quotes the homeowners received from private contractors. So, what is guaranteed replacement cost? As it turns out, it's a comprehensive form of insurance. But there are important details when it comes to taking out a policy. When time comes to make a claim, it's useful to know the process in the event of a dispute.

What is Guaranteed Replacement Coverage?

In the event of serious damage to your home, costs can rise quickly. Guaranteed replacement coverage means insurance covers all of it, even if it turns out to be more than the policy limits. But most insurers have certain requirements of the insureds - typically they have to carry enough insurance to cover replacement. Your insurer will decide how much coverage is necessary. When you make updates to your home, you have to let the company know so they can make adjustments. Guaranteed replacement cost isn't the same as market value. It may be higher or lower. That's because numerous factors affect the bill when it comes to replacement. For example, replacement might require debris removal, hiring specialized contractors who know how to do a proper restoration, and home updates to comply with current bylaws. Those are just a few examples. There are many reasons why your home's replacement cost may be expensive, and your policy should have high coverage accordingly, However, guaranteed replacement cost coverage should account for everything it takes to make your home stand again on the same site. Other kinds of replacement cost coverage might only cover a percentage of your policy limits or be restricted to the value of the property, regardless of the expense to rebuild. What's the best way for homeowners to protect their property? Keep in contact with their insurer, to make sure they are carrying enough coverage as required for guaranteed replacement cost.

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What Can Policyholders Do in the Event of Dispute?

Guaranteed replacement cost is a comprehensive form of coverage. But as the situation with the Ottawa families shows, there may still be disagreement in the event of a claim. In that event, the law in Ontario has a set process. The insured and insurer each appoint independent appraisers. An umpire, chosen by the appraisers, weighs the items in dispute. The cost of the hearing, appraisals and umpire are shared by both parties -- the insurance company and the homeowner. As the Desjardins case demonstrates, homeowners may also choose to go to court.

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