What you should know about Actual Cash Value and Replacement Cost for Personal Property.
If you have ever shopped for insurance before, you know that there are a lot of options out there. Some are more expensive than others, some cover different types of damages, deductibles can vary, and more. When it comes to your homeowners insurance, it’s important to know how the insurance company will calculate how to reimburse you if you have a loss.
When you select a home insurance policy, you may have the choice of insuring your personal property for the actual cash value or the replacement cost value. Although they sound similar, it’s important that you know the differences so that you can receive the right coverage for your needs.
Actual Cash Value (ACV)
Actual cash value is based on the value of the item as it exists today, with depreciation subtracted from the price paid for it new. As soon as you buy an item and bring it home it is considered used, even if it is in pristine condition. An insurance pay-out for an item will certainly be less than the amount you paid for it and more than likely also less than the amount it would cost to replace it with a similar item that is new.
Replacement Cost (RC)
The replacement cost is based on the cost to fully replace your personal property if it is damaged or destroyed by a covered loss, regardless of when you purchased the item. For example, if your high-end laptop is destroyed in a covered loss, a replacement cost policy will pay the full price to replace it (minus your deductible), whether you bought it days, months, or years ago. You’ll be compensated with enough to replace your laptop with a new one of similar type and quality.
Keep in mind that replacement cost is designed to replace your items, while Actual Cash Value only pays a diminished value on your claim.
For assistance with your insurance, contact the experts at Reata Insurance Group. Our dedicated team is ready to assist you with all your coverage needs today.