Your home insurance policy will determine whether personal property claims are reimbursed based on their actual cash value or at replacement cost, and damages to the structure of your home are typically assessed according to its replacement cost. It’s important to ask your Modern Risk Management representative for more specific information on what coverage would be included in your terms of service.
What is Replacement Cost Versus Actual Cash Value?
Homeowners insurance is not a legal requirement for Houston, TX residents, but most lenders will compel you to purchase indemnification when you have an outstanding loan on your house.
When calculating the actual cash value, an insurance company typically subtracts the years of wear and tear from the original value of an item that was damaged or destroyed. If the claim is approved, this is the amount you will receive after your deductible is met. All payments must also fall within the limits of your policy. Actual cash value is sometimes also referred to as depreciated cash value.
Replacement value only takes into account what it would cost to provide you with a comparable item. It doesn’t consider the wear and tear to your possession, and it also gives you the benefits of operating according to today’s prices. The years you owned the item are not held against you.
Premiums will often be lower if you choose to insure for actual cash value rather than replacement value, and it’s good to do inventory and weigh your options. Consider how old your most valuable belongings are and how much it would cost to replace them at the rates in the current market.
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