What I possess I would gladly retain.
-Goethe
Replacement cost coverage is an endorsement (a change) to your homeowners policy. It allows you to obtain replacement cost coverage (RCC) instead of actual cost coverage (ACV) when your personal property (PP) is damaged.
Generally, homeowners policies provide for ACV coverage for your PP. That means your insurance company deducts depreciation from the value of your damaged PP. For example, you own a guitar that you bought for $500 three years ago. That guitar was destroyed in a house fire, so you make a claim with your insurance company for the guitar. Because the guitar was three years old, however, you don’t get $500 from the insurance company; they give you $100. That’s depreciation. Think of it as “wear and tear” on your PP.
If you have a RCC endorsement to your policy, that means you get RCC, not ACV, for that guitar. You’re entitled to be paid whatever amount it takes to replace that guitar. That could be $300, $500, or $750.
Here’s where it gets complicated. Most homeowners policies state that, even if you have RCC, you’re only entitled to ACV unless and until you actually replace the item. Consider again the guitar. The insurance pays you $100. You take that $100 and another $600 from your own money to buy a replacement. Then send the receipt to your insurance company. They should insurance pay you $500 (e.g. $600 less the $100 already paid). That’s RCC.
Know, however, that generally there are strict timelines in regard to payment of ACV and then RCC. Remember too that ACV means “fair market value.” Make sure your insurance company pays you what it should.
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