What is Replacement Cost on Contents and Building?Posted on Jan 03, 2019
When buying insurance or shopping around for policies, you’ll come across many terms that might seem foreign to you. At least in the concept of buying insurance. One of those terms is “replacement cost.” You need to take the time to learn about this one because it’s an important term to understand.
Whether you’re insuring the contents of your property or the property itself, everything you protect has value. And everything that has value today is, generally speaking, valued for less tomorrow, with the real estate itself, being the most probable exception to that rule.
Whether you’re talking about the real estate of your home or the contents of your home, it’s important to make sure you consider purchasing replacement cost coverage when buying insurance.
Replacement Costs for Real Estate
Because real estate is the one purchase that generally appreciates (increases in value) over time, it’s vital that you not only purchase home insurance that covers replacement costs, but you’re going to need coverage that expands over time to account for the growing value of your home.
Simply put, because your home increases in value over time, the replacement cost coverage for your home insurance must also increase so that you can afford to make the required repairs when covered events take place or purchase a new home of similar value.
This is one reason it’s important to review your existing insurance annually. So you can keep up with the changes in value for your property and make sure you have the appropriate amount of protection with your current policy.
Replacement Costs for Contents
When it comes to insuring your possessions, you often have the choice of replacement value coverage, which covers the costs of replacing your belongings, vs. “actual cash value” coverage which provides you with the replacement costs of the items you own minus their depreciation values. These values can vary according to age and wear of the items. If you own a lot of antiques, for instance, it can hurt to have ACV coverage.
Don’t think it won’t hit you hard on the other items you own either, though. Electronics often drop in value (sometimes substantially) the minute you buy them. This means that you’ll rarely be able to make dollar for dollar replacements of all your possessions if you only have ACV coverage to replace them.
It all seems so complicated, and insurance companies use complex formulas to determine their risks and to try to minimize their exposure to risk when offering insurance protection. Working with a trustworthy independent insurance agency can help you get the coverage you need to help you get your life back on track quickly in the aftermath of an emergency, disaster, or other peril.