Replacement Costs: Are Your Insureds Adequately Covered?

September 23, 2021

If one of your clients needs to file a claim for a loss, theft or damage related to their home or business, you’re likely to get a call asking, “Am I covered?” Often, though, the answer is not a simple “yes” or “no.” It will depend on whether they have adequate replacement cost coverage to replace or rebuild what was lost. And the better understanding they have of replacement costs before they make the call, the better the conversation is likely to go.

Be Proactive
The time to discuss replacement value and actual cash value is when you are writing or renewing a policy. Not only can you give your client a good understanding of how the policy works, but you can also help them protect themselves prior to a potential loss.
Ask your clients if they plan to keep an inventory, including photos and serial numbers of high-value items like computers, electronics, camera equipment, etc. This can help with any future loss claims. Additionally, for clients with unique or expensive items like art collections, antiques, etc., this may be an opportunity to sell a special endorsement on the policy addressing these specific needs.

During policy renewal periods, this is an opportunity to further demonstrate your value as an independent insurance agent. Ask your client about anything that might have changed since they purchased the policy. Did the business purchase new equipment? Did the homeowner make any additions or major renovations to the home? Understanding what has changed in your customer’s home or business will help you best ensure they have adequate coverage.

Consider Economic Factors
The past 18 months have shown how outside pressures can have practical consequences for homeowners and small businesses. Disruptions in supply chains have driven up the costs of everything from gasoline and pre-owned cars to lumber, the latter of which can significantly affect replacement costs for homes and businesses.

As the trend of remote work opportunities in the U.S. continues to grow, it’s likely that rising home values will also continue to be a factor in replacement costs for homeowners for the foreseeable future. Calculating the costs of local property values will help ensure the policyholder has the appropriate level of replacement value coverage.