Just Ask Tim - Blog
Every coverage limit on your policy requires close attention, but Coverage C is something you should spend a little time thinking about. This coverage section sets the amount of money you will have to replace your personal belongs and if you will receive actual cash value or replacement cost value for those items. The amount of money you will have is called the coverage limit and the settlement method is wither actual cash value or replacement cost.
The Coverage C limit is typically set as a percentage of Coverage A which is how much your home is insured for. We frequently see policies where the Coverage C limit is set at 50%. That means if your home is insured for $200,000 you would have $100,000 to replace your damaged personal belongings. But wait, we also see the settlement method set to actual cash value. So, you may have $100,000 available to replace your stuff, but you are only going to receive the depreciated value of each item, not what it costs to replace the item. That TV you purchased 4 years ago for $400 may only be worth $50 now. Or that pair of jeans you paid $50 for may only be worth $5 now. See how this could be a big problem. You may have $100,000 worth of stuff and $100,000 available to replace that stuff, but you are only going to get the depreciated value which may be significantly less than $100,000. Do you want to go to the thrift store to replace your stuff? Do you want to come up with more money, in addition to your deductible to buy new stuff?
We never recommend actual cash value for this very reason. Most insureds want to have their belongings replace with brand new items and the want the money it would take to do that. We always recommend the replacement cost settlement method. Using the example above, you would be able to go out and buy brand new stuff and you could spend up to $100,000. Replacement cost coverage does cost a little bit more, but when you think of it as a percentage of your total insurance premium it is not much at all.
One last thought. Again, using the example above, do you have $100,000 worth of stuff? You should take some time and figure out what it would cost to replace all your belongings. Let us say when you get done you decided it would only take $80,000 to replace everything. Then you would buy 40% coverage which would give you $80,000 using the example above. In turn, $80,000 of coverage cost less than $100,000 so the difference in premium between actual cash value and replacement cost may end up being very small.
Let us help you evaluate your policy and see if you are paying for the right coverage levels. Click Here to contact us or call (954) 678-2658