What You Need To Know About Replacement Cost and Home Insurance

When it comes to money matters, no one likes to be surprised by the feeling that they’ve been shortchanged. That’s why it’s important that you understand how your homeowner insurance policy and replacement cost type responds to potential personal property losses.

When insuring your personal possessions on your homeowners or renters insurance policy, you have one of two coverage options: insuring for your property’s actual cash value or the cost to replace it. Find out the difference and why we recommend replacement cost coverage.


What is an Extended Replacement Cost Policy?

An Extended Replacement Cost policy will pay up to a specified percentage over an insured’s policy limit in order to fully replace a damaged home.  This percentage is often shown as 120 to 125 percent of the stated limit of coverage.

With Extended Replacement Cost, if a person loses their home, the policy will pay more than their policy limit to cover the replacement cost of the home. In the event that someone needs to replace their home, they get that extra boost in coverage. This can be very helpful if there also happens to be an unexpected spike in costs at the time the house is being replaced.

Replacement Cost Coverage

When insuring your possessions on your homeowners or rental insurance policy, opting for replacement cost coverage provides you the best reimbursement option. Why? With replacement cost coverage, you collect the full cost to replace the item, less your deductible. Here’s an example to illustrate the benefit of replacement cost coverage:

The furniture you bought a few years ago for $650 is now worth only $100, but today costs $900 to replace. With replacement cost coverage, you would collect $900 to replace the furniture, minus your deductible. With actual cash value, you would get reimbursed $100, minus your deductible. Remember, the age and type of possession impacts the depreciated amount, which can be pennies on the dollar.


Insuring Valuables

While your personal property is covered under your homeowners insurance or renters insurance, policy limits do apply. To insure your valuable items—such as jewelry, fine art or antiques—consider scheduling these high-value items on an endorsement or policy floater.

For all endorsed items, an appraisal or sales receipt is typically required. This will help ensure that, in the event of a covered loss, the amount of insurance is enough to cover the replacement, repair or cash payment of the item.

Why is a Home Inventory Important?

If you haven’t documented your possessions on a home inventory list, it may be hard to replace them.

Home Inventory checklist

While your homeowners insurance or rental insurance policy will cover you in the event of a burglary or fire, up to the policy’s limits, you’ll still need a thorough inventory list, including photos or video. With insurance fraud on the rise, it’s important to have a home inventory list and to keep the information up to date. Storing this information in a safe place is highly recommended.

What insurers had discovered however is that in some cases, the policy limit that was chosen to insure a property was not quite enough to fully replace an insured’s home in the event of a total loss.  This lead to the development of Guaranteed Replacement Cost policies, which made a promise to pay to fully replace your home as it stood the day before the loss.  While Guaranteed Replacement Cost policies worked out well for people who lost their home, insurers soon discovered that this form of coverage was too costly so the Extended Replacement Cost endorsement came in to use.

GDI Insurance

GDI Insurance Agency, Inc. – Your Trusted Insurance Brokers

We understand that insurance can be complicated.  At GDI Insurance Agency, Inc, our office if full of happy friendly insurance brokers who know how to get you the right coverage for the lowest possible premium on your homeowner insurance.

Headquartered in Turlock, CA, with locations across the heart of California’s Central Valley and beyond to provide a local feel to the solutions and services we provide our clients. We pride ourselves on exceeding our client’s expectations in every interaction to make sure that our client’s know how much we value and appreciate their business.

At GDI Insurance Agency, Inc. we believe that “Our Sole Purpose is to Help Our Clients Achieve and Secure Their Dreams!”  Call us today to experience the GDI difference
1-209-634-2929 or 1-888-991-2929.