Replacement Cost Coverage

When disaster hits, such as a fire, your homeowner’s insurance policy will pay you a certain amount to theoretically cover the cost to replace any items you might have lost.

However, many policy holders might not be sure of exactly how much money their insurance companies would pay and whether that amount would feasibly enable them to replace what they have lost.

When it comes to the coverage offered by homeowner’s insurance policies, one option policy holders can select is called replacement cost coverage, through which the insurance company will cover the cost to actually replace the lost item.

Replacement Cost Coverage versus Actual Cost Value Coverage

If you have selected replacement cost coverage as part of your homeowner’s insurance policy and your camera is lost in a fire, your insurance company will compensate you for the amount necessary to purchase a new camera of similar quality.

An alternative option available to those with homeowner’s insurance is called actual cost value coverage, through which your insurance company will compensate you for the market value of the lost item. Instead of paying you enough to replace the lost item, actual cost value takes into account depreciation of the lost item and subtracts that amount from the estimated replacement cost amount.

While choosing to have replacement cost coverage as part of your homeowner’s insurance does come with a higher premium, the additional expense might be well worth it if disaster should hit. Most people whose policies cover only actual cost value find it very difficult to replace any of their lost property with the lower, depreciated amount paid to them by their insurance companies.

Reevaluating Your Homeowner’s Insurance Coverage

Even if you already have replacement cost coverage as part of your homeowner’s insurance policy, it is recommended that you review your coverage every few years to ensure that the amount covered is still a viable amount for your home and the today’s marketplace.

For example, over the years you might add some upgrades to your home, like a backyard deck or remodeling the kitchen, which might have increased the overall value of your home. You should make sure that your homeowner’s insurance policy reflects these upgrades.

In addition, your policy might not account for new items you have purchased recently. It is recommended that you film your home and your possessions every two years and to keep that film in a secure location where it would be safe from any disaster that might hit your home. This way you will have video evidence to show the insurance company should you need to file a claim.

Finally, you should take into consideration how much it would cost you to rebuild your home today. The cost of labor and building materials continues to go up annually so you should ensure that your homeowner’s insurance changes as well.