After the Northridge earthquake, the insurance industry suffered major losses. Guaranteed replacement cost meant that although the policy might have a limit of $500,000 for the dwelling, the insurance company was obligated to pay to repair the home even if it took more than $500,000.  Most homeowner’s policies sold today offer only extended replacement coverage which provides coverage up to the dwelling limits specified in the policy plus an additional amount of up to 20 to 30 percent more. 

Are you underinsured?  Many homeowners are. When homeowners remodel they often neglect to increase their insurance coverage.  Don’t rely on the insurance agent’s replacement square footage figure, they always seem low.  A contributing factor to underinsurance is the increased costs of lumber, steel and other building materials.  I am not a contractor and can’t advise you what replacement cost of your residence would be, but as a responsible homeowner you should make sure that your home and contents are not underinsured.