Actual Cash Value vs. Replacement Cost
Learn the distinction between 'Actual Cash Value' (ACV) and 'Replacement Cost' when it comes to homeowners insurance policies. The difference may surprise you!
There is a very clear distinction between these terms. Actual cash value (ACV) refers to a policy that covers possessions for market value at the time they are lost or stolen. This means that depreciation will be factored in to determine what the insurance company will pay you. Replacement cost refers to the original price of the item, regardless of how old or outdated it may be.
Replacement Cost Trumps ACV
Replacement cost is preferable, but the price of the policy will reflect this. Coverage like this will pay the retail cost of replacing lost, ruined or stolen possessions. Depending on how many valuables you have, it might be worth paying a little extra to get the upgrade. With expensive electronics, actual cash value usually just won't cut it when you're trying to replace what you've lost. For example, a laptop purchased for $2,000 three or four years ago is actually worth far less than that. You'd be likely to get a check for $700 or dollars or so, but finding another laptop at that price could prove challenging.
Making Sure Your Insurance Coverage Works For You
When speaking to an agent, it's important that you're absolutely clear about the kind of policy they're trying to sell you. Obviously, the most important thing home insurance covers is your actual home, so it's possible that limited coverage of your possesses paired with complete coverage of your dwelling makes the most sense. Take an inventory of your possessions and decide what's right for you and your family. Whatever coverage you pick, speak with multiple agents to verify that you're receiving the best rate.