What is Replacement Cost Value in Home Insurance?

It’s important to understand your home insurance policy and how it works. Before you agree to a new policy, it helps to learn as much as you can about it. One key factor to consider is how much the policy will pay to you if there is a claim. Consider the difference between actual cash value and replacement value coverage. Here is how the two options compare.

Here’s is an example. You have a fire. Your home’s television suffers damage. You want your home insurance to cover the cost of the loss. How much will it pay to you? You bought the big screen TV for $800. Here’s a look at what may happen.

If You Have Replacement Cost Value

Some home insurance policies offer replacement value for your losses. That means the policy provides enough money to you to replace the item lost in a covered incident with a new one. The new item is one that is similar to what you own, and of similar value. This type of home insurance costs a bit more than actual cash value but may be important.

In this case, the home insurance policy may be able to give you enough to buy a new big screen TV. It would consider key features of the TV, such as its technology, and the size to determine how much it would cost to replace it with something similar. When the make and model are still available, that cost applies here. You may get more than $800, in this example, if the cost of the TV is higher than it was at the time you bought it.

If You Have an Actual Cash Value Policy

Home insurance policies may instead offer actual cash value. Here, it pays you the amount the item is worth at the time of the incident. This form of insurance costs less. However, it takes into account the depreciation of the asset.

In this case, that TV is no longer new. And, in some cases, it may not have the highest quality technology in it. As a result, the value of the TV before the fire was only $500. In this case, the home insurance policy pays you just that amount.

In general, it is a good idea to consider replacement cost value coverage if you have high-value possessions that are expensive to replace. Call SJR Insurance today at (321) 264-2434 to learn more about home insurance coverage options.