Replacement Cost is the term used to describe the recovery basis for property that is damaged or lost, above the property deductible.

There are two types of replacement cost, guaranteed (full) and then limited. Do you know which one you have?

In comparison, when a claim occurs, full replacement cost typically requires the insured to identify what was lost by description, and then indicate the value to be reimbursed. There is no requirement that the damaged or lost item be repaired or replaced. A simple list of items, damaged or destroyed, and their values, will get the insured paid.

Limited replacement coverage, on the other hand, injects additional hurdles to get full recovery. After identifying what has been lost or damaged by list, it is not unusual for receipts to be necessary in arriving at a settlement. Do you keep all your receipts?

A second hurdle in Limited replacement cost is if the contract requires the insured to replace the items. Typically recovery is 90% of the agreed values, and only when you have replaced the items (lost or damaged), is the remaining 10% reimbursed.

Lastly, the final reimbursement hurdle is contractual language that gives the insurer the right to replace an item if they can do so at a lesser cost. If you as the insured object to the insurer replacing the item, your final compensation is what the insurer could have replaced the item for. You could have property you paid $5,000 for, if the insurer can replace it for $3,000, you either accept the replaced item, or the $3,000.

There is a difference in annual cost (premium) between full and limited replacement cost. While an insurance claim is at a minimum an inconvenience, the differences in the types of replacement cost in the event of a claim, can be the difference between an inconvenience and a significant aggravation.


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