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For What It’s Worth: Evaluating Replacement Costs

When catastrophe strikes, the last thing you want to think about is your stuff. Even in the aftermath, when the dust has settled and the fires are out, it can be difficult to remember all that has been lost.

In last week’s post, we detailed the importance of having the right amount of homeowners insurance to rebuild your home after a disaster. What can be less obvious is how the things lost in your home will be replaced. For items bolted into your house—like dishwashers, ovens, attached microwaves, and the like—they are covered in your rebuilding costs. But what about your 65-inch 4K Sony TV, or your collection of books, or even your couch? How will those things be replaced now?

Replacing at ACV

Most insurance companies have a default in their homeowners policy that goes toward personal property coverage. However, this allotted amount is often based on an item’s actual cash value (ACV), or market value. When you do ACV, you only receive the total of the replacement cost minus the item’s depreciation.

So, let’s say a fire breaks out in your home in 2020 and it destroys that 65-inch 4K TV. You bought the TV in 2018 for $1,500, but you’re only going to get back what that TV would be worth today. That won’t be enough to buy a brand new, 2020 65-inch 4K TV though, will it? You really need to add replacement cost coverage—or make sure it is included—to make sure you’re covered.

But, it isn’t only your TV that needs replaced after this fire. You also lost all of your furniture, book and movie collections, artwork, and non-bolted-in appliances. To replace all of these items to their full, 2020 value is going to cost upwards of $30,000. Since those items all depreciated in value over the last several years, you’re only going to be able to repurchase $17,000 worth of those items.

That’s hardly going to be enough to replace all of your furniture, let alone everything else!

Replacing at Purchase Value

Having replacement costs designated in your policy will remove that element of depreciation. You’d be able to buy a brand new TV, at the same price point you bought it in 2018. That living room set you bought in 1992 for $10,000? You’ll be able to go back out and purchase something like it that’s brand new at today’s cost.

With having replacement costs designated in your homeowners policy, 75% of the insurance is going to go out to covering your personal property lost in the home.

So, let’s say you purchase your insurance through Smallwood and Small, and we use the Marshall Swift & Boeckh estimator to determine the insurance needs of your home at $250,000. That would mean that you would have $187,500 to replace—at full value—the items within your home. Not too shabby, right? That is why it is critical to get the right insurance coverage the first time.

What About Tonight?

Immediately after a loss, many fears, questions, and anxieties are swimming in your mind. One obvious question can be, what now? You and your family safely got out of your home during the fire, but it is two o’clock in the morning and you have nowhere to go. Not only that, but everything is destroyed—clothes, toiletries, and cash. What are you going to do now?

This is where additional living expense/loss of use coverage steps in to bear the immediate burden of your loss. In addition to the coverage for your home and other personal property, this coverage pays out what it takes to live away from home.

For instance, let’s say it costs $150 per day to live in your home—between utility usage, food, clothing, etc. Now think to money spent whenever you’ve been away from home for any period of time, and multiply the cost of taking nothing with you. You don’t have your toothbrush, razor, underwear, shoes, pants, shirts, food, or any other every day item that is already in your home.

That $150 per day to live can quickly become $600 in a matter of moments. Loss of use coverage helps fill that $450 gap in everyday living expenses. You’ll be able to get a hotel room, new clothes, toiletries, and food to eat. This coverage will last up to 12 months, and can be extended up to 24 months—depending on how long it takes to rebuild your home.

Figure It Out Now

When it comes to filing a claim for personal property lost, the burden of proof is on the insurance company to prove that you didn’t own an item. The problem is that while you are going to remember the big items, it is the smaller things that may not be replaced—simply because you forgot them.

Replacing an expensive TV is one thing, but what about that miniature figurine you bought at Niagara Falls in 1973? You probably forgot to mention that, and now it is gone forever. Or what about your collection of mystery novels? Did you remember all of their titles? Hopefully so, otherwise you’re out of luck.

That is why it is paramount to take inventory of all of your items before a tragedy happens. Taking pictures of items you own will help you remember what needs replaced and provide evidence to your insurance company.

Do you know if your home is covered for the right amount? Do you know the replacement costs of items you own? Don’t wait until tragedy strikes. Call Smallwood and Small today to get a no-hassle quote and get your coverage right! One of the agents at our Martinsburg or Inwood offices would be more than happy to assist in getting you covered today. Call 304-263-3361 for our Martinsburg office, or 304-229-7227 for our Inwood office, and we will get you covered right the first time!

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