Most insurance companies offer replacement cost coverage. For an additional 10 percent or so, insurers will pay what it costs to replace your home and belongings up to the amount of your coverage. For example, if your TV set that cost you $700 is damaged in a fire, you’ll get the full cost covered. But, under standard coverage, you would get the replacement cost minus depreciation. In the case of electronics, the depreciation schedule is steep. You would be lucky to get 50 percent, or $350, for the TV. Or, a $50,000 tile roof that’s rated for 20 years and your home burns when it’s 10 years old would get you a $25,000 reimbursement for the roof under standard or actual cash value coverage.
Extended coverage is the minimum you should carry if you have a high LTV (loan-to-value) mortgage. With standard coverage, a major fire would most likely leave you with an insurance check many thousands of dollars less than your mortgage balance. This is why many mortgage lenders require you to have this level of protection.
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