Homeowners Insurance Replacement Cost Coverage

Before your homeowners insurance company pays your claim, the company determines the settlement amount.

Many homeowners insurance policies, unless your property does not qualify for standard homeowners insurance, or you have an old policy, pay replacement cost for claims for your Dwelling, Other Structures, and your Personal Property insurance coverage.

Replacement cost for your personal property may be optional, but many agents automatically include this option when they quote you.

Replacement cost is an important feature because there will be no deduction for depreciation.

Although, I am explaining replacement cost for homeowners insurance, it is equally important to have it on any property insurance policyDwelling insurance for rental houses, Condo insurance, Mobile home insurance, and Renters insurance. For rental properties, some insurance companies will offer replacement cost, and others will not offer it. Some homeowners insurance companies no longer offer replacement cost for your roof.

As always, I recommend shopping with all the leading insurance companies to find the best insurance coverage and price for you.

Examples of the Importance of Homeowners Insurance Replacement Cost Coverage

If a windstorm blows off your roof, and it costs $10,000 to replace the roof, you will receive $10,000, less your deductible, if you have replacement cost.

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If you do not have replacement cost (RC), claims are settled at “Actual Cash Value” (ACV) which is replacement cost less depreciation.

If your roof blows off in a windstorm, and your roof is a 15 year-old roof that is supposed to last 30 years, you would get $5000, less your deductible, instead of the $10,000 needed to replace the roof, if you do not have replacement cost ($10,000 (RC) – $5,000 for 15 years of depreciation = $5,000 (ACV).

If your roof was 30 years old, and beyond its useful life, you would get nothing!

Your 15 year-old sofa may cost $1000 to replace, but the sofa’s value less depreciation, may only be $250.

Imagine if you have a house fire and lose all your personal property. Unless all your personal property was brand new, you would not have enough money to replace your lost items unless you have replacement cost on your homeowners insurance.

Important: Contact your agent and make sure you have replacement cost for your house and contents, and make sure you are being quoted replacement cost when you shop your homeowners insurance. This is extremely important if you have not updated your homeowners insurance policy in many years.

Do you have any questions about the importance of replacement cost coverage? Tell me about it. Please leave a comment on my facebook page. Follow me on Twitter for important insurance consumer news and new blog entries at CarInsWatch.