There are several different ways to insure items, whether it be buildings, your personal property, business property. Two of the most common ways are replacement coverage or actual cash value. I’m going to help you decide which one is right for you, and I’ll give you a little information on both.
Let’s start with actual cash value. Actual cash value is a depreciated value. It’s what the item is worth today. A good example would be most auto policies are settled on an actual cash value basis. Let’s say you buy a car for $30,000 and three years later it’s totaled up in an accident. Well, that car might only be worth $15,000 at that time. So they pay you the value of what it’s actually worth at the time of the loss. That would be an actual cash value settlement. It’s the value of the vehicle minus the depreciation or value of any item minus depreciation.
Replacement coverage is a little different. Replacement coverage is the preferred method of insuring buildings and business property and personal property. Most auto polices and boats and motorcycles are all set on an actual cash policy. Real estate and other policies are settled on replacement if possible. The way replacement works is you buy an item, and we give you the value of not what it’s worth when you bought it, not what it’s worth at the time of the loss, but what it costs to replace that item for you.
Whether it be rebuilding a home or whether it be replacing some personal property. So if you bought a TV and it was ten years old and maybe it was worth 50 bucks if you sold it, but to replace it maybe cost you $800, we’re going to give you the value for replacing the item if you have what’s known as replacement coverage on your property. It’s usually the preferred method to insure some item. Some items have to be settled on an actual cash value basis. Talk to your agent. They’ll help you decide which coverage is right for you, whether it be replacement or actual cash value, because there are some price differences and there are some requirements to meet for each coverage.