What is personal property replacement cost coverage?

Replacement cost coverage for your personal property is a higher level of coverage that allows you to replace damaged or destroyed items at today’s prices rather than depreciated values. You’ll have to pay slightly more, but if you need to file a claim, it will pay a higher amount.

“For instance, suppose you have a leather jacket that is ten years old,” Wells says. “Let’s assume this jacket came from a designer boutique. Replacement cost insurance would allow you to go buy a brand new one today at a designer boutique.” 

If you only had ACV coverage, which is standard on most policies, your insurance company would calculate how much that used jacket would be worth. The claims payout would be much lower, limiting what you could buy to replace it. 

Personal property coverage is part of your homeowners, condo or renters insurance. While homeowners and condo insurance include other coverages for structural aspects of your home, renters insurance is mainly designed to protect personal property. However, standard policies are actual cash value unless you add replacement cost.

Why do you need personal property with replacement cost?

Opting for personal property with replacement cost coverage rather than the standard ACV coverage means you can buy a brand new fridge or stove or furniture if they’re damaged in a fire. If your tv is stolen, you can go buy the current model of what you had. 

“You almost always need replacement cost coverage,” Wells says. “ACV usually pays 25 cents-ish on the replacement cost dollar. So, if you lose everything you own, and it would cost you $100,000 to get all new things, your ACV policy will pay you around $25,000. That’s not enough to recover from a loss and get back on your feet. I always recommend replacement cost coverage.”

Without replacement cost coverage, you won’t get enough from insurance to replace everything. Depreciation can take a bit chunk out of your claim.

“The beauty of replacement cost coverage is it works in today’s dollars and in today’s market,” Wells says. “What you paid for it is irrelevant. It could have been a gift or something you inherited, but you still get to replace it with a new item today. So, after a fire or other disaster, you can replace your belongings, get back on your feet and move on with your life.”

When do you need a personal property replacement cost endorsement?

If replacement cost is not included in your policy, you need an endorsement. Standard homeowners policies only cover your belongings at the ACV unless you add an endorsement for replacement cost coverage. 

“An endorsement is just a contract addendum that changes coverage,” Wells says. “Many homeowner forms provide ACV coverage, so it’s very common to purchase the replacement cost endorsement to add on to the policy.”

There are some types of home insurance policies that include replacement cost coverage. HO-5 policies offer increased protection for more high-value items and also offer replacement cost coverage. HO-5 policies are geared toward higher-value homes with a lot of valuable property, so they do not apply to every home.

You can also add an endorsement specifically for high-value items in your home, such as musical equipment or jewelry. Scheduled personal property endorsements cover damage from fire, vandalism, and theft and will even replace lost items.

“An endorsement is just a contract addendum that changes coverage. Many homeowner forms provide ACV coverage, so it’s very common to purchase the replacement cost endorsement to add on to the policy. As I said, ACV usually pays .25 cents-ish on the replacement cost dollar.  So, if you lose everything you own, and it would cost you $100,000 to get all new things, your ACV policy will pay you around $25,000. That’s not enough to recover from a loss and get back on your feet,” Wells says.

How much is replacement cost coverage on personal property?

The price of adding replacement cost coverage isn’t much compared to the peace of mind you may get. What you pay will depend on your personal property coverage, but generally, the overall premium’s a minimal change.

“There’s really not too much of a difference in the premiums in most cases…it’s not enough savings to justify underinsuring your belongings,” Wells says.

How to calculate the replacement cost of personal property

To calculate the replacement cost coverage you need, look at your personal belongings.

“I suggest you go through your belongings and make a video of them,” Wells says. Open closets and cabinets, and film the contents. Then sit down and create an inventory of your property. You don’t have to list every plate or every pair of socks, but you do need to compile a list of all your properties and their replacement costs. You want enough coverage so that you can replace your things and get your life back in order after a disaster.”  

She recommends calculating the cost in today’s dollars to replace those items, not necessarily what you paid for them.

“Purchase price is irrelevant, and the only thing that matters is what it would cost you to replace it,” Wells says. “It is a very common mistake to underestimate this amount. People look at an older sofa or some well-used cookware as ‘not worth much’ because it’s older or a bit worn.  That is a huge mistake.”

In addition to pictures, videos and lists, receipts and serial numbers are a great way to document all of your belongings and will make filing a claim go more smoothly.

Personal property replacement cost coverage limits

For personal property on a home insurance policy, the coverage limit is usually 50-70% of your dwelling coverage limits. That means if your dwelling coverage is $500,000, you might have $250,000 in personal property limits. You must assess how much all your belongings are worth - the cost to replace them - and decide if the coverage limits on your policy work for you. Discuss this with your carrier and adjust as needed.

For renters, there is no dwelling portion of your insurance, so your limits should be based solely on estimates of your belongings' worth and the cost of replacing them.

It’s a good idea to review these limits yearly or any time you add new high-ticket items.

What is a personal property replacement cost loss settlement?

The loss settlement is how much the insurance company pays for your claim. 

Your claim might be paid in installments with a personal property replacement cost settlement. First, the insurance carrier might send a check for the actual cash value, which is the depreciated value. Once you submit all your receipts, you will get a check for the difference.

This is called recoverable depreciation, and it is the standard method of paying replacement cost claims.