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Policyholder Attorney Bill Voss Discusses the Difference Between a Replacement Cost and Actual Cost Insurance Policy

Personal Property Insurance Claim – Actual Cash Value versus Replacement Costs

When you have business or home insurance coverage, you would likely feel secure knowing that you’re protected. However, you might have forgotten about the properties inside your home which constitute personal properties and which are not covered by your insurance. This is where personal property insurance comes in.

Here are some things you need to know about property insurance:

Personal Property Defined. Personal property refers to items that are not permanently attached to your home. This can include your appliances, clothes, books and furniture, among others.
 
Personal Property Insurance in Homeowners Insurance. Some home insurance policies include personal property. The amount of coverage would depend on your insurance company. Some can cover up to 40% of the coverage of your home.  

Exclusions. There may be items excluded from your personal property insurance coverage and are not eligible for payment of replacement cost. This can include antiques like paintings and collector’s items as well as outdated items that are already obsolete or are no longer working. The values of these items are difficult to ascertain, thus, they are excluded.

Read Your Policy. Make sure to read your policy thoroughly. There may be limits on the amount you can claim for certain properties like jewelries, cameras, silverware and musical instruments. Your insurance company may require you to declare the specific property and have it appraised by a professional before it can be covered.

Inventory. If you have a personal property insurance coverage, you should keep an inventory of your personal properties with estimates of their values. This will come in handy when you file your claim. You can take pictures or videos of your personal properties. You should also keep your receipts to back your claim on the values of the items. Keep your inventory in a safe place such as in a fireproof safe or a safety deposit box.

Actual Cash Value versus Replacement Cost

The amount you will be entitled to when you file a personal property insurance claim will vary depending on the provision in your insurance policy. You may be entitled either to the actual cash value or the replacement cost of your property.

The actual cash value is the value of your property at the time the damage occurred. This will take into account the depreciation of your property which will depend on how old it is. On the other hand, the replacement cost is the amount that will cost you to replace the damaged property.

For instance, you purchased a brand new television five years ago which cost $800.00 then. Assuming that the television was damaged now and your insurance policy assumes that it will last for 10 years, the cost of $800.00 will be divided into 10 to determine the value of the television that is lost each year. Since your television is already five years old, then half of its value has been lost and currently, it only costs $400.00. However, if you purchase something similar at present to replace your television, it would actually cost you $1,000.00. If your coverage entitles you to the actual cash value, you will only receive $400.00, whereas, if your coverage is for the replacement cost, you will be entitled to $1,000.00.

Considering that the replacement cost option is more beneficial to you, you will likely need to pay additional premium for such coverage.

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