What is agreed value coverage for a home?

Agreed value coverage sets the payout for a total loss in advance — the carrier and the homeowner agree on the insured value at the start of the policy, and that amount is what the carrier pays on a total loss with no depreciation and no post-loss dispute about what the home was worth. It eliminates the most common source of high-value home claim disputes: a valuation disagreement at exactly the worst possible moment.

What is extended replacement cost and how is it different from agreed value?

Extended replacement cost pays the actual cost to rebuild even if that cost exceeds your policy limit — typically by a specified percentage such as 150% or 200% of the insured value. Agreed value pays exactly the pre-agreed amount. Extended replacement cost has a higher ceiling; agreed value has more certainty. Chubb's Masterpiece policy uses extended replacement cost; PURE and AIG use agreed value. Both approaches protect against the core failure mode of standard policies: a declared value that doesn't cover actual rebuild costs.

How do California construction costs affect my home's insured value?

California construction costs have increased substantially since 2020 — by some estimates 40–60% in certain markets. A home that cost $1.8M to rebuild five years ago may cost $2.5–$3M today. If your policy limit was set based on older cost estimates and hasn't been updated, there is a gap between your insured value and what it would actually cost to rebuild after a loss. Post-disaster construction costs spike further — after a major wildfire, demand for contractors, materials, and permits in the affected area drives costs well above normal market rates, often 20–40% above pre-event levels.

Does my standard homeowners policy use agreed value or replacement cost?

Standard homeowners policies use replacement cost — the carrier estimates rebuild cost at the time of loss and pays that amount, subject to your policy limit. This creates two risk points: the estimate may be lower than actual cost (especially for custom or high-quality construction), and the policy limit may already be below true replacement cost if it hasn't been updated recently. Agreed value coverage is offered primarily through private client carriers like Chubb, PURE, and AIG — it is not standard on typical homeowners policies.

What is a cash settlement option and which carriers offer it?

Some private client carriers — Chubb's Masterpiece policy in particular — offer a cash settlement option on a total loss: instead of rebuilding, the policyholder can elect to receive the policy proceeds as a cash payment. This is valuable if you decide not to rebuild on the same site, want to purchase a different property, or need liquidity for other reasons after a catastrophic loss. Standard homeowners policies generally require proceeds to be used for reconstruction. The cash settlement option is worth confirming when you are evaluating private client carriers.

Agreed Value vs. Replacement Cost — Why It Matters for California Luxury Homes

When we review high-value home policies during client onboarding, one of the first things we look for is whether the coverage is structured on an agreed value basis or a replacement cost basis. Most clients don't know which they have. The distinction matters enormously in the event of a total loss — and total losses are exactly what California's wildfire risk makes real.

Replacement Cost: The Default Structure

Replacement cost coverage is what most homeowners policies use. The concept is straightforward: at the time of loss, the carrier estimates what it would cost to rebuild your home and pays that amount, up to your policy limit. The problem is that estimate relies on the carrier's cost models applied at the time of loss — not on a figure you agreed to in advance.

For a standard home, this usually works adequately. For a $5M home with custom architecture, imported stone flooring, hand-plastered ceilings, and a design that cannot be approximated by standard construction cost tables, the carrier's estimate frequently falls short. The gap isn't small. We have seen estimates run $600,000–$1.5M below actual rebuild cost on custom luxury properties. And that shortfall — between what the carrier's cost model says and what it actually costs to rebuild the home as it was — is entirely your responsibility.

The second risk with replacement cost: your policy limit may already be stale. California construction costs have increased 40–60% since 2020 in many markets. If your home was insured based on a valuation from three years ago, your declared value may already be below current rebuild cost before any claim occurs. Post-disaster, costs spike further — after a major wildfire event, contractor and materials demand in the affected area routinely drives costs 20–40% above pre-event levels.

Agreed Value: The Private Client Standard

Agreed value coverage sets the payout in advance. Before the policy is written, an appraisal or formal valuation establishes the rebuild cost for your specific home. The carrier agrees to that figure. If there is a total loss, the carrier pays the agreed value — no post-loss estimate, no dispute about whether the custom kitchen or the imported tile or the architect-designed roofline costs what you say it costs.

This is the standard structure for private client carriers like PURE and AIG. It eliminates the most common and most damaging failure mode of standard homeowners coverage: a valuation disagreement at the worst possible moment, when you are already dealing with a catastrophic loss.

Chubb's Extended Replacement Cost — Taking It Further

Chubb's Masterpiece policy uses a variation called extended replacement cost that takes agreed value a step further. Rather than a fixed agreed amount, Chubb's coverage pays the actual cost to rebuild even if that cost exceeds the policy limit — typically up to 150–200% of the insured value. If you insured your home at $4M and a post-fire rebuild in a supply-constrained market costs $5.8M, Chubb pays $5.8M.

This matters most in catastrophic scenarios — which are exactly the scenarios that test coverage. A major wildfire event creates labor and material shortages that spike reconstruction costs well beyond pre-event estimates. Extended replacement cost provides a buffer against exactly this dynamic in a way that agreed value alone does not.

The Cash Settlement Option

Some private client carriers — Chubb's Masterpiece in particular — offer a cash settlement option on a total loss. Rather than rebuilding, the policyholder can elect to receive the policy proceeds as cash. This is worth more than it might seem: after a catastrophic loss, some homeowners decide not to rebuild on the same site, want to purchase elsewhere, or need liquidity for reasons unrelated to reconstruction. Standard policies typically require proceeds to be used for rebuilding. The cash settlement option gives you a choice at the worst possible moment, which is precisely when flexibility has the most value.

How to Know What You Have

Pull your current homeowners policy's declarations page. If you see language like "Coverage A — Dwelling: $X, Replacement Cost" you are on a replacement cost policy. If you see "Agreed Value" or "Guaranteed Replacement Cost," your structure is different. For high-value homes, review the valuation methodology in the policy conditions — not just the declared amount — to understand what the carrier will actually pay after a total loss. If that language is unclear, that's a good reason for a coverage review.

Agreed Value vs. Replacement Cost — Why the Difference Matters for Luxury Homes