For replacement cost coverage to be valid in dwelling policies, what percentage of the replacement cost must be insured?

Replacement cost coverage in dwelling policies requires that the property be insured for a minimum percentage of its replacement cost to ensure that the insured is adequately protected. Specifically, the policy typically stipulates that the dwelling must be insured for at least 80% of its replacement cost value at the time of the loss.

This requirement helps prevent underinsurance, which can lead to significant financial losses for the policyholder in the event of a claim. By having coverage at this threshold, policyholders are more likely to receive adequate compensation to rebuild or replace their property without facing substantial out-of-pocket expenses that can result from being underinsured.

If the dwelling is insured for less than 80% of its replacement cost, the insurance company may apply a penalty to the settlement amount in the event of a loss, which could result in the policyholder not receiving the full replacement cost. Therefore, ensuring that the property meets this minimum percentage is crucial for maintaining full replacement cost coverage benefits.