When was the last time you looked at your home insurance policy? Do you know if you have replacement cost coverage on the structure of your home? What about your stuff? Having replacement cost coverage compared to actual cash value coverage can make a BIG difference when you file an insurance claim. Let’s start with some basic definitions:
- Replacement Cost is the amount of money it will take to rebuild your home just as it was before it was destroyed, or to purchase new items if your old ones are damaged or stolen. Replacement cost insurance is not always the default option when buying home insurance. It is possible that you may have replacement cost coverage on the structure of your home, but your “stuff”, like electronics and furniture, do not have replacement cost coverage.
- Actual cash value coverage is the alternative to replacement cost coverage. It will pay for today’s actual value of what is insured. The actual cash value of your items is almost always lower than the replacement cost because things typically depreciate, or lose value, over time. For example, say you purchased a laptop 5 years ago for $1000. The value of that same laptop today maybe closer to around $20, meaning your claim payment would only be around $20 to buy a new laptop. Something important to consider when thinking about needing to replace a whole house worth of things and the actual structure of your home.
Neither coverage is good or bad in comparison to the other – it’s all about what best fits your needs. The key is to make sure you know what you have and are comfortable with the coverage. Check out the video below for a quick example and, as always, feel free to send your questions my way!