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Understanding Homeowners Insurance: Replacement Cost Value Vs. Actual Cash Value

What’s the difference between replacement cost value and actual cost value?

When looking over your homeowners insurance policy, you are likely to run into industry specific terms that you might be unfamiliar with. For instance, you might encounter the terms “replacement cost value” or “actual cost value.” A huge part of understanding your coverage is understanding what these terms mean and how they affect your policy. Here’s what you need to know about the difference between replacement cost and actual cost value and how these different options affect your homeowners coverage.

Replacement Cost Value

When your policy offers coverage for replacement cost value, this means that your personal items are covered for their full value without depreciation. Because these policies essentially allow you to get a brand-new item for one that may have otherwise depreciated, they tend to be on the more expensive side. Generally, the replacement cost of insured items is determined by both policyholder and insurer before the policy is finalized. If you are looking to insure high-value items such as jewelry, fine art, antiques, and so on, it’s best to get them insured up to replacement cost value.

Actual Cash Value

On the other hand, actual cash value policies offer coverage for insured items after depreciation is factored in. Here’s a good way to think about it: it’s coverage for what the item is actually worth at the time it is damaged or lost. These policies will always offer coverage that’s less than what you actually paid for the item. As these policies offer less coverage, they tend to be more affordable than replacement cost value policies. However, when you rely on actual cost value policies, you are responsible for personally paying the remaining cost if you want to actually replace the covered item.

This is what you need to know about replacement cost and actual cash value and what these different terms mean in relation to your homeowners insurance.  Do you have further questions regarding your home insurance?  Then turn to the experts at Pierce Insurance Group.  Our dedicated team is ready to get you the coverage that you need.  Contact us to get started today.

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