Replacement Cost Insurance

The 2 Reasons Your Insurance Company Won't Replace Damaged Property

Have you purchased a big-ticket item for you home recently? That new Ultra HD 4K TV probably makes your favorite sports team look amazing, even more so with the leather sofa you just purchased. Now ask yourself how devastated you would be if something happened to these items. A fire, a plumbing issue, or a burglar could wreak havoc on your property and finances. Replacement cost insurance is a policy option that can be added o your homeowners insurance and often used to help protect your property. Replacement cost value is the amount it would cost to repair or replace a lost, stolen or damaged item with one of the same material and quality as the original — in today's market. It does not consider what you paid for the item or how much it has depreciated in value since you purchased it.

Various insurance companies in different states may offer replacement cost coverage in their standard property insurance policies. Others may require you to specifically ask for and choose this option. Whenever you are purchasing a property insurance policy, you should always ask whether coverage is for replacement cost or actual cash value. Replacement cost coverage usually reimburses you for the full cost of replacing the lost, stolen or damaged item, rather than simply reimbursing you for the value of the item at the time of the claim. Actual cash value, on the other hand, accounts for depreciation and is considered a lower level of insurance.

For many years, replacement cost was provided on a guaranteed basis — meaning that if the replacement cost exceeded the policy limits, the insurance company would still pay. That is not the case today. While many insurance companies offer "guaranteed" replacement cost coverage on an extended basis, they often restrict the amount the provider will pay to 25% to 50% above the policy limit.

It's important to verify whether the policy offers replacement cost, which will hold any claims to a certain limit, or "guaranteed replacement cost," which can offer an even higher level of insurance.

Examples of How Replacement Cost Coverage Works

Let's say you purchased a 3D LED TV at the height of its market debut in 2010 at $3,000. If your home is robbed and your TV is stolen, you will want a similar TV to replace it. Today, you can find the same TV for considerably less, but that doesn't necessarily mean your insurance company will pay you the excess. If the same make and model TV costs $1,900 today, that is the amount you will be reimbursed for when you file a replacement cost claim.

You may feel entitled to a $3,000 insurance check, since that is what you originally paid for the TV, but that's not how it always works. Hopefully, the knowledge that a replacement cost policy will replace your old item with a new one that is as similar as possible will offer you peace of mind.

In another example, let's say your brother-in-law installed a new roof on your house 10 years ago. With the family discount, you paid only $5,000 and a case of his favorite beer for the materials and work. A thunderstorm last week wiped out half the shingles and now you need a new roof. Perhaps your brother-in-law no longer works in construction, or he's your former brother-in-law, or his family has moved 2,000 miles away. In any case, he is no longer able to give you the same deal. With replacement cost coverage, it doesn't matter what you paid for the roof all those years ago. Your insurance company will reimburse you the cost it takes today to repair or completely replace your old roof.

Will My Property Always Be Replaced?

At first, it may seem like replacement cost insurance is a no-brainer. Who wouldn't want to replace their old furniture and outdated electronics with shiny, brand-new ones? However, most insurance companies require replacement cost claims to meet certain standards before agreeing to replace an old item with a blemish-free new one, including:

  • First, the loss must be fortuitous (accidental), neither foreseen by nor deliberately caused by the insured.
  • Second, prior to the loss the property was providing a functional service for the insured, and replacing the item returns the insured to the same position.

For example, if someone filed a claim on a couch stored in your back yard that hadn't been used since it was deposited there several years ago, chances are the insurance company would deny their replacement cost claim. First, it could be argued any damage the couch sustained was deliberate, being as it was kept outside. Second, the couch was functional as a lawn ornament, not a piece of furniture.

Filing a Claim on Replacement Cost Insurance

Most insurance companies also require policyholders to file a replacement cost claim within a certain amount of time, typically 180 days. That gives a person six months to either repair the lost, stolen or damaged item or find a new one with which to replace it. That may seem like a long time, but it not only protects the insurance company from fraudulent claims trying to sneak past the time requirement, it also helps the insured. It's important to remember that replacement cost coverage is a reimbursement. That means that after filing proper documentation (such as repair invoices or receipts for purchase), the insurance company then mails you the check. This means you will have to buy the new item with your own funds first. With big-ticket items, this 180-day period gives policyholders enough time to save or earn the money needed to initially repair or replace the item.

Some insurance companies handle a replacement cost claim in two steps. When you first file the claim, the insurance company may send you a check for the item's actual cash value, meaning what it was worth at the time it was lost, stolen or damaged. This can help you repair or replace the item faster, and any difference in the replacement cost is then reimbursed to you afterward.

How Can I Insure My Property with Replacement Cost Coverage?

Now that you have decided that replacement cost insurance is the right choice for you, it's important to work with a qualified agent. Knowledgeable, independent insurance agents with Trusted Choice® are always available to answer any questions you may have about replacement cost options. These agents can assist you by finding a variety of quotes from a number of different insurance providers, enabling you to choose a policy with the best coverage at the most affordable rates. Contact a Trusted Choice agent to find out how you can obtain the best replacement cost insurance policy to protect you and your property.

Now, who's ready to get their insurance problems solved?