Replacement Costs

Replacement cost on contents

Many insurance policies for your personal property are based on an actual cash value. This means that in the event of a loss to your household goods, depreciation will be taken. You need to know if you can replace a loss item today at a lesser price than you paid for it.

Your Homeowners Insurance coverage may be endorsed to provide replacement cost coverage for your personal possessions. This means that no depreciation will be taken on your personal property in the event of a covered loss. Basically, you can receive a new item for your old item when property is replaced after a loss. This is an optional coverage. Selecting the replacement cost endorsement, you will be able to replace your lost items at today’s prices.

For example, suppose you suffered from a fire loss and your Color Television was destroyed.

Four years ago the Television cost $550 and it has depreciated by $250 but today to replace the Color Television it is $650. Normally you would get the current depreciated cost less the applicable deductible. But if you have Replacement Cost for your personal property, you would collect cost to replace the television, less the deductible.

Replacement cost on your dwelling

To be assured that your home will be completely restored after a loss you need Guaranteed Replacement Cost. You need to maintain coverage equal to the full value of the house when the policy is written, advise the company of major additional or changes you make to your home, repair or replace the damaged property in the event of a loss.

For example, assume that we calculate the replacement cost for your home to be $75,000 and your home is totally destroyed by a fire. Yet the actual cost to rebuild (at the time of the loss) is $100,000. With Guaranteed Replacement Cost Coverage, you would get the $100,000 which is the actual amount needed to rebuild your home. Without this coverage, you would only receive $75,000 the balance of the cost would be upon you.