Guaranteed replacement cost

4 minute read Published on Jul 22, 2025 by BrokerLink Communications

If you have home insurance coverage or another type of insurance policy, you may have heard of the terms market value and guaranteed replacement cost coverage. While these terms sound similar, each uses a different calculation method to determine how much policyholders are reimbursed by their insurance company following a claim.

So, what is guaranteed replacement cost coverage, and how does it differ from market value? Stick around for more info.

What is guaranteed replacement cost insurance?

First things first, what is guaranteed replacement cost coverage? Essentially, guaranteed replacement cost insurance is the amount it would cost the insurance company to rebuild or replace your home from the ground up or your car from scratch in the event of a total loss.

Guaranteed replacement coverage doesn’t consider the value change caused by the supply and demand of housing or vehicles at the time of your insured loss. Ultimately, this means your home is guaranteed to be covered for the full cost of replacement, even if the cost exceeds the replacement cost of your policy limit.

Note, however, that this type of homeowners insurance policy requires certain conditions to be met. So, it’s important to ensure your insurance is up to date.

What is market value?

Unlike guaranteed replacement cost insurance, market value is extremely dependent on supply and demand in the market. This often accounts for a substantial portion of the difference between market value and replacement cost.

For example, market value is highly dependent on the building’s geographic location. The proximity to schools, libraries, parks, grocery stores, and more affects market value. The type of neighbourhood is also important for determining the market value.

Market value fluctuations are influenced by a wide range of factors, such as trends, style of the building, curb appeal, privacy options, and the floor plan. For example, open-concept homes are currently popular, which may increase their market value.

How does guaranteed replacement cost coverage work?

So, how does guaranteed replacement cost work? Let's say you purchase dwelling coverage with a policy limit of $500,000. Now, imagine an unexpected natural disaster occurs in your area or your home burns to the ground. In both scenarios, your insurer would give you a payout of up to $500,000 to put toward the cost of rebuilding your property.

But what if building materials and labour shortages make rebuilding costs upwards of $700,000? Without guaranteed replacement cost insurance, you'd be responsible for paying the remaining $200,000 out of your own pocket.

This is where guaranteed extended replacement coverage comes into play. With guaranteed replacement cost coverage, your insurance company will pay you the full amount to rebuild your home to its identical condition before the loss, regardless of what the replacement costs total, once you pay your deductible.

Similarly, with replacement car insurance, your insurer will pay the full cost of replacing your vehicle once your deductible is paid.

Types of insurance beyond guaranteed replacement cost coverage

Beyond GRC coverage, car and home insurance companies also offer policy calculations, including:

Actual cash value

Actual cash value, or ACV, is the replacement cost minus actual cash value depreciation. ACV is lower because it considers the age of the home and the age of its contents. Just like your car, your home and its contents may lose value over time.

Specified limits

This means that the insurer will reimburse you for the cost of repairing or rebuilding your home, only up to the coverage amount written in your policy.

Factors that affect your home’s replacement cost

Many factors affect your home’s replacement cost, including:

  • Size or square footage.
  • Number of floors.
  • Custom features or high-end finishes.
  • Interior finishes.
  • Type of garage and basement.
  • Age: Older homes may have features that are harder to replace.
  • Exterior home features, like siding, windows, and roof type.
  • Fixtures, cabinets, flooring, and appliances.
  • Renovations: A renovation can change the home’s replacement value, so you should notify your insurance company if you renovate.
  • Furniture and other personal property. Keep a home inventory of all the important and valuable items, as this can help ensure an easier claims process.

With these and other factors taken into account, your insurer will then calculate the cost to rebuild your home for you and your family.

Factors affecting your vehicle's replacement cost

Similarly, factors that influence the guaranteed replacement cost of your vehicle, should it be damaged beyond repair by a covered loss, include:

  • The make, model, trim, and year of your vehicle.
  • The cost of replacing a similar kind of vehicle.

Does the replacement cost amount affect my insurance premium?

Yes. Guaranteed replacement cost coverage will affect the insurance premium of your home insurance policy or car insurance. If the guaranteed replacement cost increases, your insurance premium will increase. If the guaranteed replacement cost decreases, your insurance premium will decrease.

However, there are ways you can save on your auto or home insurance policy. For example, bundling multiple insurance policies together with the same insurance provider can lead to discounts on your premiums. You can also shop around and compare quotes from different providers to find the best deal available, which may help you save even further.

How would I know if my home’s replacement value is accurate?

Estimating replacement cost can be a difficult task, but there are special online calculators, or you may contact a professional appraisal service. It’s important to make sure you have sufficient coverage, so contact your insurance broker to discuss the details and ensure the insurance to value of your property is accurate.

Is a replacement cost policy the best option for an old home or car?

Maybe. There are many different types of insurance coverage available, and your situation is unique. Because of this, we recommend speaking with your insurer directly or working with a broker.

Protect your vehicle on and off the road

While homeowners in Canada have the option of purchasing a home insurance policy, motorists are mandated by law to have coverage. While the policies and coverage minimums will differ between provinces, the most common ones available are:

How BrokerLink can help

At BrokerLink, we help Canadians find affordable insurance. Whether you need extended replacement cost insurance for your home insurance in Toronto or car insurance in Toronto, including other provinces, our experienced brokers can work within your budget to ensure you have enough coverage for your individual needs.

1-866-724-2372