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Personal Lines Education Article

What is the difference between Actual Cash Value and Replacment Cost and which one is best for you?

Imagine this situation.
About five years ago, you bought a new flat screen TV for over $1,000. Then after a thunderstorm rolls through, it won’t turn on. It’s destroyed. So, you file a claim with your insurance company, but you’re left confused when your settlement check is less than $1,000. After all, that’s what you paid for the TV, right? It all comes down to the type of contents coverage you’ve selected in your homeowners insurance policy: actual cash value or replacement cost value. But you can avoid this confusing situation by reviewing your coverage options with your independent insurance agent ahead of time. Check out our info about actual cash value and replacement cost to help you understand the difference so you can choose the right coverage for your home insurance policy.

ACTUAL CASH VALUE:
*What it's worth at the time the loss occurs, sitting in your living room.
*What you could sell it for at a yard sale, used.
*Replacement cost minus depreciation.
*This settlement amount will be lower.
      New TV Worth $1,000, Depreciation minus $400, Your check $600.

REPLACEMENT COST:
*What it's worth at the time the loss occurs, sitting on a showroom floor.
*What you could buy it for at a store, new.
*this does not take into account any depreciation.
*This settlement amount will be higher.
       New TV worth $1,000, Your check $1,000

In most claims the adjuster may pay out depreciated value first and then pay the difference as you replace the items.