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Is Actual Cash Value Insurance Your Best Option?

Actual Cash Value Insurance is one of the policies offered for property insurance; whether real estate or personal property. The other two being replacement cost insurance and agreed value insurance. These policies describe your choice of loss settlement option. That is; how your insurance company determines how you are paid in the event of a successful claim.

What is Actual Cash Value Insurance?

Actual cash value insurance is the amount equal to the replacement cost, minus depreciation of the damaged or stolen property at the time of the loss. Let’s say you bought a laptop at $3,000 three years ago, then insured it with actual cash value insurance. Unfortunately, it gets stolen, so you file an insurance claim. Assuming the laptop now retails for $2,500, your insurance company will take that cost and will then also factor in depreciation. It will, therefore, calculate how much your laptop has depreciated in the three years you have owned it and subtract the amount from its cost today to determine your payout. So, if they find it has depreciated by $600, your payout will be $2,500 – $600 =$1,900. If you had replacement cost insurance you would receive the full $2,500 to buy a new laptop at today’s prices.

Actual Cash Value Insurance for Valuable Items

While most items depreciate over time, some gain value instead. Be sure to let your insurance agent know if you own anything you suspect might appreciate with time. Why?
Well, your standard homeowner’s policy might not cover your valuables for their full value since it offers limited coverage on such items as:

  • Jewelry
  • Precious stones
  • Paintings
  • Firearms
  • Silverware
  • Antiques
  • Furs
  • You may, therefore, need to purchase a separate policy, such as valuable items insurance, or add a rider to your homeowner’s policy. A rider is an insurance endorsement that provides you with additional coverage.

    Actual Cash Value Insurance for Your Home’s Physical Structure

    Actual cash value insurance considers the depreciation of your home’s walls, roof, floors, lighting, etc, and not how much it will cost to replace them in today’s market. Should you be in a situation that calls for you to rebuild your home, you’ll have to dig deep into your pockets in order to purchase new items at today’s prices. This is why most homeowner’s insurance policies are based on replacement value by default.

    Should I Choose Replacement Cost Insurance or Actual Cash Value Insurance?

    An insurance policy with coverage based on actual cash value is usually cheaper than one based on replacement cost since it factors in depreciation. However, it doesn’t pay you enough to replace your lost or damaged property with new property of the same or similar kind. So, isn’t paying slightly higher premiums better than finding out you don’t have enough money to rebuild your destroyed home?

    Depending on your financial situation, your home, and your belongings, actual cash value insurance can still work for you. If you have lots of savings, for instance, you may decide higher premiums aren’t worth it. We at Contractors Liability would like to help you make an informed decision regarding your insurance coverage. Call us at (866) 225-195.

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