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What is Best for You: Replacement Cost or Actual Cash Value?

What is Best for You: Replacement Cost or Actual Cash Value?

Your homeowner’s insurance is designed to protect your belongings. But does it?

Most homeowners could not replace their belongings and repair their home without the aid of home insurance. Should your home face a listed peril, such as damage from a thunderstorm, fire, hail, or natural disaster, you may be faced footing the bill to get your home back to your home-sweet-home status. This is a worst case situation for most homeowners!

Fortunately, if your home and belongings are lost in such an event, home insurance steps in to cover costs of replacement and repair! With this reliable safety net, your finances don’t have to be siphoned due to a hurricane or theft.

Within a homeowners insurance policy, homeowners can opt for Actual Cash Value or Replacement Cost. But when it comes down to it, what is the difference?

More Bang for Your Buck
Payment based on the replacement cost of damaged or stolen property is usually the most favorable figure from a homeowner’s point of view. This is because it will compensate you for the actual cost of replacing property.

For example, should your high-end electric guitar be stolen, a replacement cost policy will reimburse you the full cost of replacing it with a new guitar of the same kind. The insurer will not take into consideration the fact that you played this guitar every day for the last two years, causing a considerable amount of wear and tear!

Cashing in the Value
Contrastingly, actual cash value (ACV), otherwise terms as market value, is the standard that insurance companies arguably prefer when reimbursing policyholders for their losses. Actual cash value is equal to the replacement cost minus depreciation.

In short, it represents the dollar amount you could expect to receive for the item if you sold it in the marketplace. In the case of the stolen guitar above, the insurance company would deduct depreciation and return you the difference.

Now that you know the difference, make sure that your home insurance covers your home and belongings in the best method to suit you. For a quality policy to match your needs and budget, contact the Insurance Agency of Dean Davis, serving Austin and neighboring cities in Texas today!