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Replacement Cost? Will your Home have enough?
Home insurance dwelling replacement cost guarantee and replacement cost guarantee on contents are two significant features of many home insurance policies.
Yet, most homeowners are confused about how these two features actually are settled by the insurance companies. Most insureds, after a claim, are shocked to find out that they don't have these replacement guarantees unless they meet certain conditions. If the conditions aren't met then the insurance company will settle the claim on an Actual Cash Value determination which factors depreciation of the property. As something gets older and used it will depreciate and become less valuable.

As I've stated many times in past blog posts, your policy is a contract. Your contract spells out exactly how the policy will perform when losses occur. If you don't like the way your current insurance policy will perform after a loss, when you review the contract, then you should find a different insurance company. 

They [the insurance companies] are not all the same. 

The contracts are not the same.

For example, let's say you wanted a policy that would pay you the value on your policy even if you didn't want to rebuild on the same property. Most policies will not pay you your policy limits and replacement cost benefits unless you rebuild on the same property. Most policies have contract wording specifically for this situation and most insurance companies will not just cut a check and say "Have a Nice Day".

There is a section in ALL policies which clearly describes Loss Settlement. Find it in your policy and read it. If you don't have your policy call your agent. Most policies are online and easily accessible to the agent. I'll quickly give one carrier's detail of how they settle losses.

  • We will pay actual cash value for a covered loss to the following personal property. This means there may be a deduction for depreciation for property. [Replacement Cost Contents is already being limited]
    • Which by its inherent nature cannot be replaced.
    • Not maintained in good or workable condition. 
    • Which at time of loss is either obsolete or useless to you. [This is not referring to your spouse]
  • We will pay the cost of repair or replacement for a covered loss to the other property. This means there will be no deduction for depreciation. [Replacement Cost is coming back, woohoo!]
    • For personal property, our payment for loss will not exceed the least of the:
      • Blanket Property Limit applying to the property;
      • Special Limit applying to the property;
      • Actual cost incurred to repair, restore, or replace at time of loss; or
      • Replacement value at time of loss.
    • For other property, our payment for loss will not exceed the least of the:
      • Blanket Property Limit applying to the property;
      • Replacement cost of that part of the property damaged or equivalent construction and use on the same premises; or
      • Amount actually and necessarily spent to repair or replace the damaged property.
  • The value of the property insured in not agreed upon but shall be determined at the time of loss.
  • We will pay no more than the actual cash value of the damage unless; [This is where people get upset]
    • Actual repair or replacement is complete; or
    • The cost to repair or replace the damage for the entire loss is less than: [The insurance company will cut you a check if it's a small claim]
      • $1,000 for personal property
      • $2,500 for other property
  • You may make a claim for loss on an actual cash value basis. You may then make a claim for any additional liability on a replacement cost basis within 180 days after the loss.

Homeowner Tip:  Read your policy and ask questions of your agent about this section of your policy. I quickly looked at three insurance carrier policies and they were all different. There were many similarities yet all had subtle differences that matter to different clients. The more broad the coverage the better it is for you. The less restrictive the Loss Settlement section is for you the better for you. 

Don't just accept, at face value, when your agent tells you, you have Replacement Cost guarantees. Have him/her show you the section so you can read for yourself how the insurance company will pay you after a loss. 

Remember, your insurance agent isn't the one cutting you a check after a loss, the insurance company is. So, you need to know what their contract says about loss settlement and replacement cost not what the agent is trying to sell you on.

Author Richard Morris

Richard Morris, an independent insurance agent in Chandler, Arizona, has been serving and helping Arizona families and businesses with all their insurance needs for over 23 years. Visit his website at to see all the ways he can help you with your insurance needs or call the office at (480) 336-2707 or toll free at (888) 907-9349. Connect with Rich on Google+ and Twitter.


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