What is replacement cost coverage?


Replacement cost coverage is designed to help you repair/replace damaged items to make you whole again. 

Your roof is totaled in a hailstorm.
If you have replacement cost coverage on your home, then the company will pay to replace your roof, minus your deductible.  No depreciation will be taken. However, the roof HAS to be replaced and the expense incurred before full replacement cost is paid. 

With replacement cost coverage, the insurance company only owes to repair a damaged item unless the repair cost exceeds the cost to replace it.

Your washer and dryer were hit by lightning and aren’t working. The cost to repair to washer & dryer is $800.00. The cost to replace the set is $1500.00. The company would owe $800.00 to repair the set, minus your deductible.

If an item must be replaced, then the company will pay the final cost to replace the damaged item (less any applicable deductible), but only up to the amount of coverage listed on your policy. 

You lost an irrigation pivot system due to wind.  
The pivot system is insured for $90,000.
The cost to replace the damaged system is $100,000.
The company only owes $90,000 minus your deductible.

If your pivot “system” is insured for $90,000 and the cost to replace the pivot itself is only $80,000…then the company only owes the $80,000 minus your deductible. 

The maximum amount paid is the LESSER of: The cost to repair/replace an item OR the coverage amount listed on the policy.

Your home was destroyed by a tornado (or fire).
The policy declarations page shows $350,000 coverage.
The cost to rebuild the home with like kind/quality materials is $450,000.
Unfortunately, the company only owes $350,000 minus your deductible. ☹

Hence…the importance of reviewing your coverage periodically, and notifying your agent when you make improvements, additions, or remodels on your home, buy new (or upgrade) equipment, add (or update) a pivot system, or put up a building etc. 

Items with the replacement cost coverage need to be insured to their replacement values.  Companies apply some inflation adjustments at renewal time, but these adjustments are not always adequate, and they don’t get applied mid-term.  The recent “drastic” increases in material cost has made it even more important to review your coverage regularly.

The cost of insuring your property to full value with replacement cost coverage DOES cost more premium, BUT you would have adequate coverage to replace items if/when you have a loss.

Do you KNOW what your policy covers? 

Are all buildings, pivots, equipment, and all other items insured on your policy?
Will you be happy with loss payment amounts at the time of a loss?

Avoid disappointments at loss time…

Give us a call to review your coverage TODAY!

Wishing everyone a safe and happy Holiday season!

Kathy, Kristen, Allisa, Sara Jo & Ashli
Bruning Insurance Agency

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