What Does Replacement Cost Mean In Home Insurance? 
`` Replacement Cost '' as a term in a Homeowners ' policy refers to the `` Settlement Option '' that your Insurance Company would use when processing your claim . In general terms , replacement means that your item would be replaced with one of like kind and quality should it be lost or severely damaged as a result of a covered peril . Most modern Homeowners ' policies include this with regard to your Personal Property . Some still offer this for your Dwelling but in most cases these days , a policy will have some modified version with regard to the house itself . The principal is very much the same in that the policy will pay for replacement using building materials of like kind and quality , but the total amount available may be limited to 125 % of the current stated dwelling amount listed on the policy . That is why it is a good idea that you and your Insurance Professional review your coverage and have an up to date `` Reconstruction Analysis '' completed every couple of years or so . 