If something happens to your home or your personal property, do you want your insurance company to help you replace those things or only give you what they’re worth at the time something happened?
Actual Cash Value (ACV) Explained:
With an actual cash value policy, you’re going to get a payout that’s equal to whatever the personal property is worth at the time of loss. In other words, they’ll take depreciation, which won’t be enough to replace that piece of property.
Let’s give a quick example. Let’s say you have a very nice MacBook. You bought it for $2,000. A covered loss occurs, and you need to file a claim to get your MacBook replaced. Well, guess what, you bought that MacBook three years ago. It’s not worth $2,000 now. It’s worth $800. That’s what you’re going to get from the insurance company. You’re not going to be able to replace your MacBook.
Replacement Cost Coverage Explained:
Replacement cost coverage is exactly what it sounds like. The insurance company is going to give you enough money to actually replace your piece of property. So in our MacBook example, if something happens and it’s a covered claim and the insurance company is writing you a check, guess what? They’re going to give you however much it costs to go out and actually replace your MacBook with a new one.
What Do These Coverages Apply To On Home Insurance?
This is also a coverage that is not applicable to just your personal property, but to your actual home. If something happens to your actual home, do you just want actual cash value, or do you want to be able to replace and repair whatever accident happens at your home?
Generally, you have to endorse your policy for replacement cost on both the personal property and the actual dwelling or structure of your home. So make sure your policy gives you replacement cost coverage for both your home and personal property.
And if you have an agent that ever tries to sell you an actual cash value policy, run! There is no need for you to ever purchase an actual cash value policy, especially because adding that extra endorsement to get replacement cost coverage is extremely inexpensive, but it’s very, very valuable.
So go and check your policy now and make sure you have replacement cost coverage. If you aren’t sure, contact me, send me your coverage page, and I can look at it to make sure you have the correct coverage.