Many consumers assume that if their house is completely destroyed, their insurer will pay whatever it takes to rebuild it. Most insurers, however, set a limit on replacement costs. Typically, this cap equals the replacement value stated in your policy plus 25%. Thus, if your policy pegs the replacement value at $200,000, the insurer will pay no more than $250,000 to rebuild your home.
But say a major storm blows through your area, destroying numerous homes. Construction costs could climb as materials become scarce and contractors are in high demand. That $250,000 may be insufficient to cover rebuilding a house like the one you had, and you'd be stuck with paying the extra costs.
Check the replacement cap in your policy. If you want a policy with no limit--guaranteeing to pay whatever it costs to rebuild--you'll have to purchase a special policy, available through a few insurers.