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What happens if I don’t replace my contents after a claim?

You suffered a massive loss. Perhaps fire tore through your home and destroyed everything you owned. Or maybe a truck missed it’s turn and ran straight through your house compromising the structure’s integrity which prompted the roof to collapse. Or maybe you came home one night to find your home had been burglarized and many of your expensive possessions taken.

Whatever the reason ensuring you have coverage for a loss is one of the primary reasons for carrying home insurance – it’s a way to make sure you don’t have to pay out-of-pocket to replace all the property that took you a lifetime to save up and acquire.

But once you’ve filed the claim and made a list off all the items that are now gone now what? Most insurance companies will offer you a settlement based on the type of coverage you have and the policy limits.

Type of policy coverage

There are three types of coverage that insurance companies use to calculate your insurance settlement. These are:

Actual Cash Value (ACV): Actual cash value policies pay the amount needed to replace the item minus depreciation . Suppose for example a tree fell through the roof onto your eight-year-old television. With a replacement cost policy the insurance company would pay to replace the old TV with a new one. If you had an actual cash value policy however your insurance provider would pay only a part of the cost of a new TV because your old model had already aged eight years and as a result is worth less than its original cost.

Replacement cost (RC): Replacement cost policies provides you with the dollar amount needed to replace a damaged item with one of similar kind and quality without deducting depreciation (the decrease in value due to age wear and tear and other factors). This coverage would cap out at a certain limit on your policy.

Guaranteed Replacement cost (GRC): If your home is damaged beyond repair a typical homeowner’s policy will pay to replace it up to the limits of the policy. If the value of your insurance policy has kept up with increases in local building costs a similar dwelling can generally be built for an amount within the policy limits. That’s because with GRC your house is rebuilt even if it costs more than what your policy coverage limit allows. Remember though there are certain requirements in order for you to qualify for this coverage so talk to your broker about this coverage.