What is Replacement Cost Coverage?

If you’ve ever purchased a homeowners insurance policy, you’ve probably heard two terms: replacement cost coverage and actual cost value. But what do these terms mean and why is having replacement cost coverage a better idea?

What is Replacement Cost Coverage
Replacement cost coverage refers to the actual cost to rebuild your home and replace all of your belongings in today’s modern era. This means that if there is a catastrophic fire or other natural disaster that damages your home, your insurance company will pay to replace your structure and belongings at today’s rates without considering deprecation. They will also pay to replace your belongings, no matter how old they are.

Modern Building Technologies
If you own an older home, replacement cost coverage is a great idea. This means that your home will be rebuilt after a catastrophic loss with modern building technologies. Often, this means greater energy efficiency and safety protocols that were not available when your home was originally built.

What is Actual Cost Value on a Homeowners Insurance Policy?
Now that you fully understand what replacement cost is, it is important to understand what actual cost value means. Actual cost value is the opposite of replacement cost. Instead of replacing your 1990’s television with one from the modern era, you would be given an amount in the value of your television the moment your loss occurred; a figure considerably less that probably wouldn’t allow you to replace it.

NOTE: Most insurance carriers do not offer replacement cost coverage on certain pieces of jewelry, antiques, firearms, and other specialty items. Please check with your agent to determine what your policy actually covers.

As you can tell, opting for replacement cost value on your homeowner’s insurance policy is a wise idea. For more information, please contact your local Little Falls insurance agent at Hannekan Insurance Agency.

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