Replacement cost coverage insures your property for what it would cost to repair or replace your damaged property without subtracting its depreciation. This number may be different than your home's market value.
The decisions you make when your first buy home insurance impact how much your provider pays on a claim. Replacement cost coverage is a good example of this.
Insuring your property for its replacement cost value means your insurer pays to replace it with property that's similar in quality. Your other option is to insure your property for its actual cash value (ACV). Insuring your home for its ACV means your provider deducts depreciation from your claims payout.
Many home insurance companies automatically offer replacement cost coverage for the structure of your home. Your personal property, like appliances, fixtures, and furniture, is usually insured for its actual cash value. That doesn’t mean you can’t opt for replacement cost coverage; you may just have to ask for it.
Even when you get replacement cost coverage, you may be surprised by your payout after a claim. That’s because most insurance companies first pay your property’s actual cash value, and then reimburse you once you’ve replaced or repaired the item.
Let’s say you bought a new flat-screen television for $2,000 three years ago. Unfortunately, it’s stolen, so you file a claim on your home insurance. With an actual cash value policy, your insurer subtracts a certain percentage for three years of depreciation. Now here’s what happens if you have replacement cost coverage:
The price of your replacement property may be more the original item’s price tag, but your home insurer usually still pays. Just be sure to check your policy terms. Replacement cost coverage payouts cannot exceed your policy property limits.
Insurers also have a minimum requirement for replacement cost coverage. This is called the 80/20 rule. Essentially, your insurance policy must cover 80 percent of your home’s replacement value. Come up short, and your insurance provider may only pay a portion of the replacement costs.
At Kin, we calculate your home’s replacement cost for you. Our formula takes into consideration:
But to give yourself a rough estimate of your home's replacement cost, you can multiply the square footage of your home by your local construction costs per square foot.
You might want to invest in the replacement cost coverage if:
Getting an actual cash value policy may save you money on premiums, but it can leave you underinsured when it’s time to file a claim. Do your research and talk to an agent to make sure you’re adequately insured.
First, you can buy your home insurance through Kin. We offer replacement cost coverage for your dwelling, and you can choose to have replacement cost coverage for your belongings, too. But if you’re going through another provider, ask if your policy is written on a replacement-cost basis.
If you already have a policy, you might want to check the coverage. The information you need is typically listed under Coverage A (dwelling coverage) and Coverage C (personal property protection).
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