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What Is Replacement Cost Insurance?

By September 5, 2021September 16th, 2021Insurance

If you have ever been shopping for Homeowners Insurance, you probably came across the terms “Replacement Cost Coverage” and “Actual Cash Value.” Unlike some insurance concepts, these two are relatively straightforward and simple to understand. Essentially, there are only two options from which to choose in determining the amount of protection you want from a Homeowners Insurance policy.

Actual Cash Value is the depreciated value of real estate or personal property at the time of the loss. It does not allow you to replace what you’ve lost. Instead, it compensates you for the value of the item as if it were being sold today. Here is an example:

Contents Replacement Cost

An individual bought a TV set five years ago for $2,500, and a fire destroyed it. The insurance company determines that televisions have a useful life of 10 years. Today, the television would cost $3,000, and the destroyed television had 50% (five years) of its life remaining. The actual cash value equals $3,000 (the replacement cost) times 50% (useful life remaining) or $1,500.

Not surprisingly, replacement value insurance has become the more popular choice for homeowners and renters, even though the premiums are higher. Here is what you should know about replacement coverage:


Dwelling Replacement Cost

Replacement coverage will rebuild your house as it was before the loss or allow you to buy brand new items to replace those that were damaged or stolen.

Here are a few points to review that give a more complete picture of how Dwelling Replacement Cost Value insurance works and how it can benefit you:

  • Typically, insurance companies calculate the replacement cost by using the initial price of any lost or stolen items. In the case of a house, the replacement value cost is how much you would spend to rebuild the structure using similar materials if damaged or destroyed.
  • Replacement cost refers to the home’s value but not the land it sits on. You might want to consider hiring an appraiser or contractor to evaluate your home’s replacement cost. They have up-to-date pricing on construction materials and any unique upgrades on the house.
  • Replacement cost is not the same as market value. It only covers the cost to rebuild the house.
  • Remember that insurance will not pay you to buy more expensive items to replace things that were damaged. You cannot replace a 40″ flat-screen TV with a 65″ top-of-the-line 4K model. This also applies to building materials: you may not get marble countertops if you had Formica before the claim.


How Do I Purchase Replacement Cost Insurance?

You will need to speak to an insurance agent who can help you find the right coverage and the most reputable insurance company to provide it. However, before you talk to an agent, make a list of everything you want to have insured. The list takes on added importance if you include valuable items or those that appreciate in value.

Homeowners insurance typically covers your personal property up to a limit, so if you have expensive items on your list, you might have to increase the limit or buy separate coverage. Let your agent know if you have any of the following:

  • Fine jewelry
  • Valuable art
  • Precious metals and gems
  • Expensive firearms
  • Antiques or heirlooms


Find an experienced homeowners insurance provider

White Cloud Insurance has been delivering the most competitive personal insurance options to individuals and families across the country. Ask one of our insurance experts about a policy with replacement cost coverage. Use the convenient contact form, call us at 305-556-1488, or send us a message at At White Cloud Insurance, you are always the priority.