The Insurance Replacement Cost Claim
It's Just Like Any Other. Or Is It?
Property insurance replacement cost coverage was designed by insurance companies so that the policyholder who has a property damage claim does not suffer a loss due to depreciation. Basic coverage for most insurance policies is provided on an actual cash value basis, which is determined by deducting deprecation from the cost to replace. This results in the insured receiving basic indemnification for the loss.
Property insurance replacement cost coverage expands on the principle of indemnification by allowing the insured to collect the full replacement cost, once the property is actually restored. The insured is paid the actual cash value first, while the amount that was deducted for deprecation is withheld by the insurance company until the restoration is completed.
In the insurance industry, "replacement cost" or "replacement cost value" is one of several method of determining the value of an insured item. Replacement cost is the actual cost to replace an item or structure at its pre-loss condition. This may not be the "market value" of the item. Wikipedia
Insurers are able to provide this property insurance replacement cost coverage because the insured pays more premiums by insuring the property for a higher amount, which is expected to be at the replacement cost of the property. If the policyholder does not fully insure, then their recovery will be reduced in relation to their underinsurance but in no event will the insured receive less than the actual cash value loss.
There are many issues that can affect property insurance replacement claims including: meeting the policy’s timelines; determining if the property can be replaced elsewhere and/or differently; buying versus rebuilding; and what happens when there are many items of personal property involved?
Often there is a lack of understanding about replacement cost claims. This issue of Adjusting Today clarifies some misconceptions and ambiguities by discussing replacement cost coverage from a claims perspective.
Have you suffered a loss due to a
Depreciation Insurance Claim
? Contact the public adjusters at AI for help!
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Adjusting Today is provided free of charge as a public service by Adjusters International, Inc., disaster recovery consultants. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases.
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