What about other types of Replacement Cost Valuation? We talked about standard replacement cost, What are these other options I am hearing about?
There is extended replacement cost which provides for additional coverage in the event of a regional or national emergency. The value is usually represented by a percentage of the building value such as 25% or 50% extended replacement cost which would mean that the insurance carrier would pay up to 125% or 150% of the insurance amount. This helps when costs explode due to a natural disaster. Building costs tend to spike because of shortages of materials and labor.
Extended replacement cost is not intended as a cure for underinsuring your building. According to the terms of your insurance policy you are obligated to maintain replacement cost on your building to a certain percentage of the actual replacement cost such as 80%, 90% or even 100%.
If you recall when Hurricane Katrina struck New Orleans the vast amount of rebuilding actually led to shortages of building materials regionally and around the United States. And, depending on your proximity to Louisiana it may have been very difficult to find licensed contractors who were not already on the job rebuilding. If you were unfortunate to have had a loss or a complete loss of your building during that time frame there was a real possibility that the cost to rebuild would have exceeded your replacement cost value.
That brings up a topic for another time. Loss of use can be a substantial expense and is made much worse with large disasters. Stay tuned for more on this
Extended replacement cost steps in during crisis such as the one described to ensure that there is enough coverage even during a regional catastrophe. Discuss the insurance needs of your building with your agent to make certain that you have enough coverage now today and in the future. We hope that you never need to use the coverage but making certain that it is there will allow your business to recover in the event of a partial or total loss.