Replacement Cost

The Replacement Cost of an item is defined as the amount of money necessary to effectively acquire a similar product to the one lost. Essentially, this means, how much would this item cost to replace in today’s market. This differs from ACV or Actual Cash Value, which takes into consideration monetary depreciation of the item. If your policy includes the policy wordings for “Replacement Cost,” usually under Personal Property in the Declarations of your insurance binder, then you are entitled to this in the event of a loss due to an insured peril.

How does Replacement Cost work in a claim?

If you experience a loss that is covered by your home insurance agreement, and you are in the process of replacing your belongings, you must understand how exactly this works. Once you have submitted the required paperwork, in the form of a “Proof of Loss,” you may begin to recoup some of the money to replace your items. A Proof of Loss is a form that the independent adjusting firm hired by the insurance company will provide you to assess your damages. On it, you may list the item you lost, the replacement cost of the item and other factors such as the depreciated value and when you bought it (this differs from insurer to insurer, but must comply with your municipality’s laws).

Once an ACV or actual cash value has been deduced, the insurance company may dispense this amount to you. Now, this will likely be a small amount, with which you are not able to replace the item in question. However, after you do purchase the item, usually with additional funds you may have, the receipt may be submitted to the insurance company, and they will pay you the difference for the extra expense you incurred.

This is an arduous process and if you are going through a claim, you may need to seek the advice of a lawyer or a public adjuster who will work on your behalf when dealing with the insurance company. The stress of such an undertaking may be compounded if you do not possess the funds to adequately replace your items on your own. Under these circumstances it may be possible to obtain the entire amount from items from the insurance company.

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