Iowa Property & Casualty Exam Practice 2026 - Complete Preparation

The Additional Coverage Increased Cost of Construction under the Businessowners Policy is designed to specifically apply to buildings insured on a replacement cost basis. This coverage helps to address the additional costs incurred to meet newer building codes or standards when rebuilding or repairing damaged structures.

When a building is insured on a replacement cost basis, the policy will pay the cost to replace the property with similar kind and quality, without the depreciation factor that applies to actual cash value (which does take depreciation into account). Therefore, if a building that is covered for replacement cost sustains damage and needs to be brought up to current code, the additional coverage kicks in to cover the difference between the cost of building a similar structure and the costs necessitated by compliance with the updated codes.

In contrast, buildings insured on an actual cash value basis do not qualify for this additional cost coverage since they are subject to depreciation, which may not sufficiently cover the necessary expenses for updates to meet current building regulations. Similarly, the coverage is not limited to only residential buildings, as it applies broadly to any qualifying structure under the policy that meets the criteria for replacement cost insurance.