Home and Renters Insurance (Actual Cash Value or Replacement Cost)
Replacement Cost vs Actual Cash Value?
There are different options to consider when insuring your house or your belongings. Most common method is replacement cost valuation (RCV) and most home insurers offer this option of coverage. Standard home insurance policies offer RCV coverage for the dwelling and optional for contents of your home.
This valuation method will replace your lost or damaged items with equal value. For example, a TV that you purchased for $1,500 three years ago would be replaced with equal value today, without any depreciation. Keep in mind that you still must pay your deductible.
On home insurance policies, RCV is the amount of money that would take to replace your damaged or destroyed house with a similar home in size and modern materials in today’s market. You will notice the RCV amount is sometimes significantly higher than what you paid for your house or what you paid to build it, because it would cost more to build a brand-new house on your property in case your house is destroyed.
Actual Cash Value
Another way to insure your house or your contents is called Actual Cash Value or ACV. This cost valuation considers depreciation of covered dwelling or items. This option comes with a lower insurance premium, but it also means your payout would be lower in case of a covered peril.
Using the same three-year old TV mentioned earlier, your damaged or stolen TV would be worth considerably less today than when you purchased it new, after taking depreciation into account.
In other words, your payout amount for your TV would be estimated as a used item with the current market value.
Ultimately it is up to the insured to decide which coverage suits them best. In some cases where homes are financed, lenders may require you to get replacement cost coverage on your house.
With Renters insurance policies, premium difference between ACV and RCV is relatively small, so it’s always better to ask for replacement cost coverage for your contents. For additional info about renters insurance click here.
At Bargain Insurance Connection we have variety of companies and coverage to choose from. For additional consultation or quotes call us at 816.453.7722 or fill out online forms for Home Insurance or Renters Insurance.