In most cases, the answer is no. Most policies use replacement cost at a specific location as a measure of the maximum recovery that can be afforded under a property insurance policy. Most policies contain a “Valuation” condition similar to the following:
B. Replacement Cost – When replacement cost is shown on the “declarations” for covered property, the value of covered property will be based on the replacement cost without any deduction for depreciation.
The replacement cost is limited to the cost of repair or replacement with similar materials on the same site and used for the same purpose. The payment shall not exceed the amount “you” spend to repair or replace the damaged or destroyed property.
Replacement cost valuation does not apply until the damaged or destroyed property is repaired or replaced. “You” may make a claim for actual cash value before repair or replacement takes place, and later for the replacement cost if “you” notify “us” of “your” intent within 180 days after the loss.
Typically, absent any other endorsement or provision, this policy language simply limits the amount of replacement cost coverage that is available to the cost of repairing or rebuilding on the same site, with like kind and quality. Therefore, if an insured wants to move to a different location, and spends more than the actual cash value payment made by the insurance company, that insured could possibly be entitled to replacement cost coverage, even though not rebuilding at the same location.
However, it is important to recognize that the “same site” (some policies use the phrase “same location”) requirement will be a cap upon the amount of replacement costs. Let’s assume that the property insured is in Hickman County, Tennessee (a fairly rural area). It is a 2000 sq. ft. brick home with all amenities. The replacement cost of that home, for the sake of argument, would be $175,000.00. When a loss occurs, the policyholder decides that she wants to move to Williamson County, Tennessee (a more suburban area) and builds a home almost exactly like the one that existed in Hickman County. The price of this home was $380,000.00. The carrier previously paid an actual cash value amount (replacement cost less depreciation) of $125,000.00. What additional monies does the policyholder get upon completing the property in Williamson County?
The answer should be only $50,000.00 – the amount it would have taken to rebuild the house with material of like kind and quality at the same site or same location in Hickman County.