Replacement cost insurance means the insurance company will pay for the rebuilding costs of the same quality and size of building that there was previous to a loss, spending up to the limit of coverage on the policy. So, if you do not have enough coverage listed on your policy you will have to pay the difference.
If you find yourself in a situation where you do not have enough insurance coverage, the insurance company will then pay on a proportionate share. In the most simpliest form of explaining this, if you only ½ insure something, they will only pay ½ of the loss. This is because you are only paying ½ the premium. I have written about this before referring to the Co-Insurance Clause. You can find that article on the Agri-Post website or you can call your insurance broker and ask them to explain this to you.
A survey of insurance companies has told me that there are a number of claims open right now where there is not enough insurance to cover the loss. With the increases in building costs, the limits on insurance policies are no longer adequate, they need to be adjusted. Be sure to check into the rebuilding costs of your buildings including the cost of cleaning up the debris and the possibility of having to build in the winter. Discuss this with your insurance broker. The costs to you at the time of a claim can be large.
Be sure to seek advice and purchase insurance from those who understand your business!