Replacement value insurance can be very complicated and rather unsettling for many people.
Many times people are surprised by what their valuables are actually worth at the time of loss. For example, a brand new big screen TV that cost you $3,000 3 years ago may only be worth $1,000 now, a far cry from what you paid for it.
The solution is replacement value insurance. Replacement value insurance coverage will allow you to replace everything you lost with similar, new items. Make sure that your policy spells out that both your home and its contents are covered by replacement value insurance.
After inventorying your home you may wish to think about any floaters or insurance riders you may wish to add to your policy to cover specific high value items.
Many policies have a limit on the maximum amount that will be paid out for a single item. For example you may have a top of the line computer with many expensive upgraded parts that may have cost you thousands of dollars more than the original price of the PC. Your standard policy may not offer more than $1000 for a computer, much less than its value with the upgraded parts. With a floater, and the receipts or video proof of the parts, you will never have to worry about proving you owned an item and there will never be a dispute over what it's really worth.
An important rider to consider if needed is flood and earthquake coverage.
Most policies do not cover these disasters and many companies do not even offer it due to the massive potential overhead if there is a disaster. If you are in an area that is prone to natural disasters you will have to request this extra coverage. For flood insurance, you can also contact the National Flood Insurance Program. In California, you can get earthquake coverage through the California Earthquake Authority.
When it comes to replacing your home, look for extended or guaranteed replacement value coverage. Guaranteed replacement covers rebuilding no matter what the cost but it is not offered much any more. Instead many companies offer extended replacement value insurance, which will cover up to 100 percent of the value of the home.
An important consideration is inflation and the value of your home. Your home may have cost $125,000 10 years ago to build but now it may cost $175,000 to rebuild. When reviewing or renewing your policy ensure that the value of your home is inline with its current value. If there is a discrepancy you may find yourself either having to rebuild a smaller home or having to pay the difference between what the insurance policy paid and what it actually cost to rebuild.
A final important point is to understand the claims process. Two policies may offer the same coverage but how they handle your claim can be vastly different. Have the agent explain exactly how claims are handled, especially when it comes to writing you a check.
