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Why should you have replacement cost coverage?Hmmm...It’s been a long time since you’ve refurnished your home. But that sofa in the family room is still the most comfortable place in the house, even if it was the first piece of furniture you bought for your first home.When you paid $500 for that sofa 10 years ago, it was a pretty large investment. But nowadays, you can’t get a sofa of that same quality for less than two or three times your original investment. What would happen if you lost that sofa in a fire? Your homeowners policy doesn’t pay the amount it would cost for a new one of similar quality. With a basic homeowners policy, furniture is only insured for its actual cash value: its replacement cost at the time of the loss minus a depreciation of its value and any deductible applying to your policy. So you’d probably be lucky to get $50 to $100 for the old, worn-out sofa—not even close to the price for a new one now. But with a replacement cost coverage endorsement, you’d be paid for the lost item at today’s cost or what it would reasonably cost to replace the sofa with one of equal value, after you satisfy the deductible. No worries about depreciation or inflation affecting your reimbursements—you’ll receive credit as if you bought the sofa yesterday. And for the most complete protection of your home itself, make sure you’ve insured your residence to at least 80 percent of the actual cost of rebuilding it. If your home is insured for less than 80 percent, any losses won’t be paid in full. Replacement cost coverage is typically available for a small additional charge to your homeowners policy. You and your agent can work together to calculate what the replacement cost would be for your home and possessions, and to make sure you have protection sufficient for your needs.
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