Insurance 101- Replacement Cost Coverage, YES PLEASE!

Just like computers, cars, and cell phones, insurance policies have evolved over the years. Due to increased competition insurers have been coming up with new perks in their policies to separate themselves from the crowd. These perks include identity theft coverage, extended replacement cost coverage and electronic data recovery coverage.

While all these perks are great, some insurers are going the other way. They are dealing with increased competition by lowering prices. In order for them to do that they are removing coverages. One of the common coverages they are removing lately is the Replacement Cost Coverage clause. Why are they doing this?

In today's internet world, a lot of people are going on-line and comparing home/renter policies strictly on price. These companies prey on these consumers. They offer home/renter policies that do not have Replacement Cost Coverage. They are less expensive.... and there is a reason why. They hope that you will you won't know to look for it and select your policy strictly on price. If you don't look for it you may miss it, and when you need it you will notice the difference.

Secondly, due to some of the recent losses across the country some insurers are changing your policy (Removing Replacement Cost Coverage) to limit their exposure. Unfortunately, they are letting their customers know through mailers that most people don't read.

So what is Replacement Cost Coverage, and why should I care?

Replacement Cost Coverage means that an insurance company will pay what it costs to replace your damaged property in a covered claim. I know, I know, I hear you screaming, "Duh, every policy does this." I am here to tell you that they don't.

Some insurers have chosen to offer policies with Actual Cash Value Coverage instead.

Actual Cash Value Coverage means the insurer will pay what it costs to replace your damaged property in a covered claim LESS DEPRECIATION. This applies both to your home and your personal property.

So let's consider an example to explain the difference between Replacement Cost Coverage and Actual Cash Value Coverage.

Your roof is a great example. Let's assume your 20 year old roof is damaged in a fire and will cost $30,000 to replace.

With Replacement Cost Coverage your insurer will pay what it costs to replace your roof minus your deductible up to your policy limits. In this example that would be $30,000 minus your deductible.

With Actual Cash Value Coverage your insurer will pay what it costs to replace your roof LESS DEPRECIATION. So let's assume your 20 year old roof had an estimated life span of 30 years. Your insurer may only pay out $10,000 minus your deductible. You will have to come up with the difference if you want a roof over your head.

The same coverage would be extended to your personal property. Let's use a 5 year old flat screen TV with a ten year life expectancy as an example. Let's assume it would cost $1,000 to replace. If your TV is stolen you may only get $500 minus your deductible with Actual Cash Value Coverage.

Insurance is supposed to get you back to where you were before, not cut you a check for a fraction of what it will take.

I hope you can see why Replacment Cost Coverage is so important to you and your family. Please take a moment and ask your personal agent if your policy includes it. As always feel free to email or call me if you have any questions, even if your policy isn't with my agency.

The bitterness of poor coverage lingers long after the sweet price is forgotten.

Joe Urvina is an insurance agent located in Gig Harbor, WA.
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jurvina@farmersagent.com
Twitter - @UrvinaInsurance
(253) 858-5881