If you’ve looked at your homeowner’s insurance policy in depth, you’ve no doubt come across a few different values listed on the paperwork. These values commonly consist of replacement cost and actual cash value, among others. Usually, your insurance policy will cover one or both of those amounts.
But what do they actually mean? How are the two amounts different? How can you determine which you need to focus on to see if you have enough insurance coverage? Keep reading, as we’ll answer all of those questions and more here.
What are Replacement Costs?
The title of this type of homeowner’s insurance says it all. This option covers of the cost to replace your home and restore it back to the way that it was the way before the damage. For example, if your home is damaged in a fire, the replacement costs will include everything from demolition to rebuilding the areas that were damaged, including the walls, flooring, ceiling, roof, and more.
Although you may think that this would be a good time to upgrade various things in your home, the replacement costs only pay for things of a similar quality. You’ll get new cabinets and flooring to replace what was damaged, but it will be very much the same as it was before.
One good thing about replacement costs is that they don’t include depreciation. You won’t have to worry about having to pay out-of-pocket to have your home repaired, unless you don’t have enough coverage, because the insurance won’t depreciate the overall worth of the structure based on age and wear and tear.
In some cases, replacement costs can apply to the other things in your home as well, such as your furniture and appliances. However, those items usually fall under the umbrella of actual cash value, which is calculated in a different manner.
What About Actual Cash Value?
Actual cash value is a little different. Although it sounds like it would be the cash value that you paid for everything in your home, it isn’t. For example, often actual cash value includes the costs of items like:
- Appliances – These include your washer and dryer, television sets, refrigerator, stove, dishwasher, any additional freezers, and just about any other appliance.
- Furniture – All of your furniture is included in this category, such as couches, beds, chairs, dining room tables, hutches, china cabinets, bookcases, desks, and more.
- Collectibles and Other Items – This category includes everything from pictures and paintings to your clothing and just about anything else in your home.
However, instead of paying out the exact amount of money that you did for these items when they were new, actual cash value only covers that amount minus depreciation. When you call in a claim, your insurance company will examine how old each of these items were and use a formula to determine their worth based on that amount. This is how much you’ll receive to replace those items.
Have Questions? Contact Charlotte Insurance
Still have questions regarding replacement cost versus actual cash value? Contact Charlotte Insurance. Our agents can explore and explain all available options with you and put together the coverage plan that meets your needs.