There are a lot of homeowners’ insurance policies out there. Costs can vary, as well as what is covered and what isn’t covered by individual policies. One detail that’s important to understand is how reimbursement for your damaged property will be calculated. Depending on your policy, calculations could be different for your home, as compared to the property within your home.
When you shop around for a homeowners’ insurance policy, you might have the option of insuring personal property such as your television, for the actual cash value (ACV) or the replacement cost value (RCV). These are two decidedly different ways to calculate how much you would be reimbursed if your property is lost, stolen or damaged.
What is Actual Cash Value?
ACV is based on the value of an item if you were to try to sell it today. It’s not based on the value of the item as if it were new, as depreciation is calculated into the figure. How new your item or its condition doesn’t factor into the equation, either. This means to replace the item, you’ll likely have to kick in additional funds to purchase the item after you get your check from the insurance company. The difference of cost between “new” and the “actual cash value” you’d receive is the portion of the risk that you choose to bare yourself. One great benefit for ACV policies is that the premiums are typically lower than RCV policies.
What is Replacement Cost Value?
RCV is basically the price to replace your personal property, regardless of when it was purchased. For example, if your rec room pool table is destroyed in a covered loss, an RCV policy will give you enough money to replace it, whether it was purchased a year ago or ten years ago. With your reimbursement check, you’ll be able to go out and buy a new pool table of equal quality. Since you are not baring any of the risk yourself as with an ACV policy, your insurance company will pay for it all, less any applicable deductible. Understandably, though, premiums for RCV policies are typically more expensive than ACV policies.
AVC Policies Are Common, But Not Recommended
Unless your homeowners’ insurance policy expressly states that your personal property is insured for its replacement value, you’ll be reimbursed for actual cash value. In most cases, you can upgrade your policy with an endorsement, though your premiums will increase. You’ll have to look at your own finances to decide if an RCV policy is within your monthly budget and how much additional you would have to spend to replace your belongings should the worst happen.
Keep in mind that insurance isn’t meant to improve your situation if disaster strikes, but rather make you whole. Insurance is intended to help you replace what you lost and not improve you situation. If you ever have a covered loss, you will likely be reimbursed enough to replace your personal belongings, and bring you to a point as if the loss never occurred.
Reis Insurance Agency will always write Replacement Cost unless a risk does not meet underwriting guidelines to do so. We only partner is A-rated companies that provide the best coverage possible. That means writing homes with RCV.