Cleveland Home Insurance: Replacement Cost vs Actual Cash Value (What your agent should discuss with you)
Before we even get into how to choose between replacement cost vs. actual cash value insurance coverage, we want to start by stating the basics and reiterating how important home insurance is. Home insurance is vital. We know this because we know that your home is important to you. Whether it's a small country home or a large estate, we know it’s a staple in your life. You sleep there at night, you raise your kids there, and you host the holiday party there every year. Your home is full of memories, laughs, and the best of times. With that being said, home-ownership is not all parties and laughs. Sometimes disaster strikes and it’s best to be prepared if and when that happens.
Maybe you live in an area that floods a lot. Maybe you don’t live on the safest side of town and experience theft and vandalism pretty regularly. Either way, these are all prime examples of why you need to make sure that your home is insured.
Now that we’ve established how necessary home insurance is, let’s talk about the different kinds of coverage. There are two types of coverages called replacement cost and actual cash value. The first thing that you should do before you even think about how to choose between replacement cost vs. actual cash value coverage is to figure out what replacement cost and actual value really mean.
Replacement Cost Insurance
Replacement cost, when it comes down to it, is the cost of what you would pay for damaged, stolen, or destroyed property at today’s prices. This means that whatever the item costs right now is how much you’ll receive to replace that item.
One additional thing to keep in mind with this coverage is that it is typically the pricier option, which makes sense, as it is the less risky option. There is less risk involved, because you know that you will receive enough from the insurance company to go ahead and replace anything that was damaged, stolen, etc. With this peace of mind, though, typically comes a higher price tag.
Actual Cash Value Insurance
This is a little bit different than replacement cost because the insurance company will take the price that something is worth today and then factor in depreciation. That sofa that has similar one’s on the market for $1,000? The insurance company will take that $1,000 and subtract however much depreciation in value your couch had.
If you are looking for a lower-cost homeowners insurance coverage option, this is it. With that being said, it’s important to note that lower-cost usually ends up meaning higher-risk. With paying less for this coverage, you do take on more of a burden if something does happen, as depreciation costs are factored in when your insurance company gives you the money to replace what you had. The price vs. risk difference is definitely something that you will have to think through and decide what is best for you and your family. Luckily, most agents are more than happy to talk through your particular situation, wants, and needs to make sure that you are getting the coverage that is most beneficial to you.
What exactly does this mean?
Even after breaking down what both replacement cost and actual cash value mean, it can still be a bit confusing to understand how to choose between replacement cost vs. actual cash value coverage. We’ll give you an example to better explain how to choose between replacement cost vs. actual cash value home insurance coverage.
Say you have a huge flat screen TV in your living room, and then a storm comes through and destroys your home. That TV cost $1,200 when you bought it, but you had bought it about two years ago, and since then the kids have run into it, the speakers stopped working as well, etc. If you had replacement cost coverage, you would get the amount of money that the TV is going for on the market today. If you had actual cash value coverage, the scratches, not-so-great-anymore speakers, and all of the other imperfections would be subtracted from that market value. The answer to the question, how you would like your insurance company to respond to this situation, should give you a great indication of what coverage you want, and help you to better understand how to choose between replacement cost vs. actual cash value coverage.
Now, go get insured!
Now that we’ve broken down the basics of how to choose between replacement cost vs. actual cash value coverage, you’re ready to take action. It’s important to do research on your own to make sure you are properly informed enough to make a decision on what type of coverage you will go with.
Here at Cobos Insurance, we’re ready to help you with all of your home insurance needs! Regardless of whether you’re looking for replacement cost coverage or actual cash value coverage, we have agents ready to answer all of your questions and help you find the right policy for both you and your family. Click here to learn more or give us a call to speak with an agent today about how we can help you to get that piece of mind that comes from knowing your home, and anything else you may choose to insure through us, will be taken care of!