Knowledge is Power and in this case, knowledge can also save you money.  First, the question, “If something happens to my home or my personal property, how is this policy going to respond”. 

Your HO3 Homeowner’s policy is a package of coverage’s and attached endorsements to the coverage’s.   We are going to discuss the replacement cost endorsement to Coverage – C, your contents. 

The is a great endorsement for your homeowners policy, with a little insurance education, you can make an informed decision if its something you want in your policy or if you’d prefer to provide the coverage through self insurance, as this endorsement can be removed from most policies.

Replacement Cost Endorsement to Coverage C – contents on your policy.  Just as the name implies, this endorsement provides the $ for the cost of replacement of the insured contents.  Your standard coverage (without replacement cost endorsement) pays for the actual cash value of an insured item, for a loss by an insured peril, less any deductible. (You bought a TV 5 years ago for $1000 but today it’s worth $200).  The base policy will pay the value of $200 less any deductible.  With the replacement cost endorsement , if a new TV of the same size and quality cost $700 today, then if you purchase a replacement, the replacement cost endorsement would provide an additional $500, (less the deductible) bringing the total payout to the items replacement cost.  (Remember, less any deductible the policy has).

Example – TV value $200 with a  $500 deductible = No payout without replacement cost endorsement.  With the Replacement Cost Endorsement, if you purchase the replacement TV for $700, your pay out is as follows.  $200 Value plus the additional $500 for replacement, less $500 deductible = $200 total payout for your replacement TV.  Had this been a $1000 or $2500 deductible, no payout would have been made.

This coverage is at its best when you are talking a total loss of the home such as in a fire or wind related covered peril.  When you are only looking at a limited number of items, it may not even come into play due to the deductible. Note - the coverage limit payable for contents remains the same, 50-75% of your dwelling coverage, depending on your policy options.

The cost of the endorsement is variable with each company, but I have seen an average of around 20% of the total policy, for this endorsement.  The higher the deductible, the less the benefit from a limited loss with this endorsement. 

Bottom line – You can save around 20% of your policy costs, if your willing to remove the endorsement, and self-insure the benefit it provided.  Question - When is the last time you had a claim on your policy?