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Personal Property Coverage with Replacement Cost Value

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When selecting a homeowners policy, you will be faced with many decisions. A lot of math, state minimums, and endorsements will be reviewed and added to the policy to ensure it is comprehensive and matches your needs and the requirements of a mortgage company. When it comes to personal property coverage C, you will be faced with a choice to set it as a default actual cost value or upgrade it to replacement cost value.

Personal property coverage comes in two levels. First is the gold standard, which is the replacement cost value. The second option is to select the actual cash value of the items within the dwelling.  It’s recommended to choose replacement cost value for personal property coverage as it is more comprehensive and provides better benefits.

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If you have selected the gold standard, it is important to note all the details that go with it. Although it is the best level of coverage available for your valuables, it takes some work to ensure the coverage includes all the items it should in case you find yourself needing to call on it in the future. Keep reading to learn exactly how it works.

Key facts
  • By default, personal property coverage provides protection up to the actual cost value of the belongings, which includes depreciation.
  • You can increase the limit of personal property coverage to replacement cost value, which will ensure that all items can be replaced with new ones in case of a loss.
  • It is important to create and update an inventory of valuables on a regular basis to ensure you get the proper value back for each item lost.

How does replacement cost value personal property work?

Personal property coverage with replacement cost tends to be simpler to deal with for homeowners than actual cash value coverage because you don’t need to worry about depreciation. This is because it only requires the following things to be happen for a successful claim:

  • A covered peril to occur
  • Photos or video of your items (this should be taken regularly to keep your items up to date)
  • Receipt of the destroyed item

If you have all of these things in order, you can send them to your insurance company, and an adjuster will review the claim and approve it if it is in compliance. Not everyone keeps receipts for every item they ever bought, though, so then what?

If you do not have a receipt for a specific item, the adjuster will take more time to track down the item’s original value. After the adjuster determines the original value, the claim will be submitted for that amount.

Common covered perils that will result in an accepted claim are fire, smoke, hail, hurricane, wind, rain, snow, fallen objects, and others. If the item is found to be damaged due to a reason that is not covered and insurance, the claim will be denied.

Replacement cost value vs actual cost value

Another way to understand how personal property coverage with replacement cost works are by comparing it to the actual cost version. This gives policyholders a deeper understanding of the policy that is right for their needs. 

Replacement cost value will cover the cost to purchase brand-new items to replace your damaged belongings. You don’t need to worry about depreciation.

Actual cost, also known as actual cash value, differs because the amount you would receive for an approved claim is the replacement cost minus the cost of depreciation. Essentially, you only get the item’s current value, not what it would be if it was brand new.

If you go with replacement cost, you likely will not need to spend extra money out of pocket as long as you keep a detailed inventory and photographic evidence of owning the item. If you choose actual cash value, you will need to cover part of the cost out of pocket.

What personal items are covered?

There is a wide range of personal items that are covered with a personal property replacement cost policy. In general, most of the items that you buy from the store and bring home and use will be covered by this insurance. Common examples of covered items include:

Items that are luxurious or considered to e high-value will not be covered under this policy. Instead, a separate endorsement must be purchased, and the high-value item would need to be assessed to determine its value and coverage in case of a covered peril. This pertains to items like jewelry or artwork.

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Calculating the replacement cost of personal property

Your insurance agent and the company will assist you in calculating the replacement cost of your personal property in the event of a covered peril. While this will be great for some people, others like to have a more hands-on approach to better understand what to expect back. If you want to calculate your own replacement cost of personal property, do the following:

  1. Make an inventory. You should have an inventory of all of your belongings that is updated on a regular basis. The inventory should be broken down room by room. Keep a description of the product, the model number, and the brand name.
  2. Take photos and videos. Regularly go through your home and take photos and videos of items you own. This will serve as part of the submittal process when filing a claim. Keep these photos and videos up to date for the most accurate claim.
  3. Research item cost. Now that you have an inventory of items, it is time to go through and figure out their value. Do some googling, and make sure to note prices in your spreadsheet. Set up an excel formula to multiply the cost for items you have multiples of.
  4. Secure your list. Although it may be tempting to save your list on your computer and leave it there, find additional places to store it as well. Back up your list on a cloud server put it in a safety deposit box, or ask a friend or family member to hold it. This way, you do not lose the list in the event a covered peril takes place.

After you have completed these steps, you will have a good idea of the total replacement cost of the items in your home. This will be helpful in the future in case you ever need to file a claim, as the research and documentation are already available.

How much personal property coverage do you Need?

The amount of personal property coverage you need depends on your personal circumstances. If you have a home that only has the basics, and you do not often splurge on technology, appliances, or other items, you may be safe taking a policy that is 50%-75% of your home’s total value.

If you are a big tech enthusiast, have antiques, or collect other items of value, it is better to buy more personal property coverage. This will ensure you have enough to replace your must-have items like furniture and appliances, as well as those fun but expensive items like computers and gaming systems. 

Try making an inventory and base your coverage selection on the totals you come up with. If you plan to expand in the future, add another $10,000-$20,000 more in coverage as a safety net.

What does personal property coverage exclude?

Each insurance policy is unique when it comes to exclusions. While this is true, there are still many similarities with most policies. The following examples are excluded by almost every personal property coverage plan available:

  • Cars
  • Credit cards
  • Pets
  • Rental items

Each of these items will require separate endorsements or insurance policies. When preparing your inventory of items, it is important to exclude these items to speed up the claim process.

Do I need a personal property replacement cost endorsement?

If you own jewelry, computers, or other items of high value, then it is important to purchase a personal property replacement cost endorsement. This endorsement increases the threshold of the covered cost, which allows you to recoup the most money for the value of the lost item.

Before purchasing this type of endorsement, you should discuss the maximum payout thresholds available for each type of item. In most cases, jewelry is given a maximum payout of $2,500. If you have a piece that is worth more, an endorsement is beneficial because it will allow you to get the rest of its value back instead of being capped out.

Check these thresholds for televisions, computers, gaming systems, and other high-value items so that you are not caught in the dark with minimal coverage after a traumatizing peril.

Secure your personal property

Buying personal property with a replacement cost policy is very important when selecting insurance. It will help you replace the items in your home that you loose due to a covered event. Be mindful of the coverage you need, and ensure you update your inventory regularly for the best long-term benefits. 

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Katelyn is a freelance copy editor and writer based in Massachusetts. She holds Bachelor's Degrees in Business Administration and Political Science, both from Fitchburg State University, as well as a Master's Degree in Public Administration from UMass Amherst. In her free time, Katelyn enjoys reading, traveling, and spending time with her family.
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