After you’ve decided which insurance level you need for your home, you’ll need to determine if you’re going to insure your property at "replacement value" or "actual value". The items covered in these particular value assessments will be outlined in your coverage forms.
For this article, we’re going to explain and explore replacement value.
Most people would trumpet this form of insurance policy, simply because it will replace the valuables or belongings in your home without depreciation during the event of loss or peril.
Depreciation treats things like older furniture as used items and prices them as such. You might see the endless value in that old leather couch, but actual value insurance won’t. Replacement value insurance will replace the exact item you claim, at whatever cost.
What if your stove and adjacent refrigerator get torched in a grease-fire? Since even basic home coverage includes both fire and smoke damage, you’ll be provided with a payment for the cost of a brand-new replacement stove and fridge of similar brand and/or value, even if the appliances were ten years old.
Now, you must be thinking this is the best deal out there for home insurance, but only your specific policy will define the extent of replacement; coverage varies across providers.
There are always some cautions to consider.
What if you bought the first generation iPad 64GB for $700 in 2010 and you file a claim that proves it was stolen from your home?
With replacement insurance, you’ll be reimbursed for whatever a first-generation iPad costs now, instead of what you’d expect: $700 worth of the shiniest, latest generation iPad. Want to know how much a first-gen iPad costs today? About $100 on eBay, sadly.
You might feel a little ripped off, and rightfully so, but replacement insurance will only “replace” your exact make and model. This is especially brutal for technology that depreciates on its own.
Replacement value insurance is beneficial for things like high-end furniture or materials that have less of a fluctuating price in today’s market. The replacement price may even go up for things like leather couches or fancy countertops.
In the event of loss or peril, you’ll need to prove that you own the items you are claiming, and at what price. Make sure you can describe, document, and prove the genuine loss of product or furniture.
In some cases, you will need to replace your damaged or lost item before you can collect any money from your insurance provider. Depending on the size of the claim, you may need to provide a lot of information before receiving a settlement.
Luckily, with replacement value insurance, you will receive the full amount that it costs to replace your damaged valuables. You might get one cheque for the actual cash value of the item before the damage (this is the depreciated cost), followed by another one that tops up your costs once you’ve physically replaced that stove of yours.
For more information, check out our comparison guide on the difference between replacement and actual cost value insurance.