Deciding on what coverage you need for your personal property can be a difficult task. Typically, a standard homeowner policy will protect your personal belongings only at a set percentage of your dwelling cost. The extent of this coverage will vary depending on the policy’s loss settlement clause.
This clause determines what property will be valued at “actual cash value” and what will be valued at its “replacement cost.” So, what is the difference between these two types of coverage?
Actual Cash Value (ACV)
In a homeowners policy, actual cash value is equal to the cost to repair or replace an item, minus depreciation. For example, if you’ve owned a flat screen TV set for five years, you will only be covered for the amount equal to what that TV set is worth now less depreciation. Coverage based on ACV tends to be cheapest since depreciation is factored into the claim payment.
On the other hand, replacement cost will pay the dollar amount it would take to replace the damaged item with like kind and quality with no depreciation. Looking at the example above as it applies to replacement cost, your insurance company will pay to replace that same flat screen TV with a similar set. A replacement cost policy offers more protection and will cost more since depreciation is not a factor.
If you own any valuable items, such as jewelry, computer equipment, antiques, and other items of exceptional value, you should speak with your independent agent about additional protection through a personal articles floater.
For more information on coverage for your personal property, contact McGrath Insurance Group at 508-347-6850 or visit us at www.mcgrathinsurance.com.
*This article is written for informational purposes only and should not be construed as providing legal advice.