Is replacement cost or actual cash value better for your home insurance?
When you are reviewing your homeowners insurance policy, you are likely to encounter terms that are specific to the insurance industry. For instance, you might run into the terms “replacement cost” and “actual cash value.” But what do these terms mean and what do they mean for your coverage? Here’s what you need to know about these two terms.
Replacement Cost Value
If your policy includes coverage for replacement cost value, this means that your home insurance company will reimburse you for covered personal property based on the replacement cost at the time of purchase. This coverage does not account for the covered items’ depreciation. These policies tend to be more expensive since you will receive compensation for a brand-new item regardless of how much the value of the item has dropped during your time of ownership. Replacement costs are generally set and agreed upon by all parties before a home insurance policy is finalized. If you want coverage for high value items such as jewelry, fine art, and so on, getting this type of coverage is advised.
Actual Cash Value
Actual cash value refers to the replacement cost of an item minus depreciation. This means that your insurance company would provide compensation for a covered item based on the item’s current value. As the value of items decline the longer you own them, actual cash value policies provide less coverage than their replacement cost value counterparts. Because they offer less coverage, these types of policies tend to be more affordable. However, having this limited coverage could put you in a difficult financial position if you need to repair or replace high-value items.
Ultimately, it’s up to you to determine whether a replacement cost value or an actual cost value policy is better for you. If you would like to learn more about each policy option or need more insurance advice, then turn to the experts at Westwood Insurance Agency. We are ready to assist you with all your homeowners insurance needs. Contact us to get started today.