Most insurance companies now have a clause on your home policy that guarantees the replacement cost of your home. This means if the insurance company has estimated your home rebuilding cost at 200,000, and you have a loss that requires rebuilding, if the rebuilding expense goes over and above the 200,000, the insurance company picks up the excess. Good protection to have right? Well to ensure that this clause is still in effect, the homeowner does have some responsibilities. You must remember to contact your insurance company and advise them of any renovations or changes that would increase the rebuilding cost of your home. If you do not contact them, they can waive the clause to guarantee your rebuilding cost, and you may be left with a hefty balance to pay to have your home rebuilt!

Normally this clause states that any changes that would add $5,000 or more to the rebuilding cost need to be reported. So you would need to call if you put an addition on the home, renovated a kitchen or bathroom, finished any part of your basement etc. If you are not sure, call you insurance company and let them know anyway, they can advise you if the changes you made will increase rebuilding costs.

Some examples that do not increase rebuilding are:
New windows or doors
New furnace
New appliances
Newly painted rooms

All of these types of changes will no doubt add resale value, but do not increase the rebuilding cost of your home as the insurance company will have to put new windows in your home regardless of how old yours were.

-- Greg Lewis, State Farm