Actual cash value vs. replacement value

When buying homeowner’s insurance you will be faced with many different decisions.  Do you want to increase your limits of liability?  Do you need to get a separate quote for flood insurance?  And what is the difference between replacement value and actual cash value anyway?

The first two questions are relatively easy to answer.  The limits of liability set on your policy are your decision and can be based on how much you want to pay in premium and how much insurance you want to have.  And as for flood insurance, yes, we can offer you a separate quote for flood insurance regardless of where your home is located.

When it comes to replacement value and actual cash value, the difference comes with your property’s depreciation.  Replacement value is how much it would cost to replace the item.  Actual cash value is the amount the item is actually worth at the time of the loss (replacement value minus any depreciation).  Say your television cost $1000 at the time you bought it 5 years ago.  If it were stolen today, you would need to have replacement cash value insurance coverage in order to recuperate the full $1000.  If your policy was set up as an actual cash value policy, you may only get back a portion of the money considering 5 years had passed since you originally bought the television.

Of course, each homeowner’s policy is different and everyone has different questions when it comes to terms and phrases within the policies. Your insurance agent will be able to answer any question you may have regarding your homeowner’s insurance policy.  Don’t be afraid to ask him anything.  He has been trained and licensed in his field so that he can give his clients the information they need to make the best decision about homeowner’s insurance.


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