How does the difference between replacement cost and actual cash value affect me? Homeowners insurance compensation can be based on either the actual cash value or the replacement cost of the damage or loss of the covered property.
For example, if the policy covering personal property is based on the replacement cost, it means that if a fire occurs in the kitchen and damages a refrigerator that you bought five years ago for $2,000, the insurance company will reimburse you enough money to purchase a new refrigerator with similar features.
However, if the policy covering personal property is based on the actual cash value, and the same refrigerator from the previous example is destroyed in a fire, the insurance company will reimburse you $2,000 minus the depreciation of the refrigerator over five years.
That’s why it’s important to read and understand the homeowners insurance policy when you sign it.
On the other hand, the dwelling coverage policy typically is based on the replacement cost. This means that if the mentioned fire burns down the kitchen and the roof, the insurance company will pay the necessary amount to rebuild the affected structure with materials and qualities similar to what existed before the incident, regardless of the age of the house.
It’s important to grasp that all contracts include the obligation to pay a deductible applicable to all cases mentioned here, and they also have a maximum compensation limit. This limit should be updated to reflect the value of your personal belongings and any improvements or expansions you make to the property.
If you’re seeking affordable home insurance, call Univista Insurance. How does the difference between replacement cost and actual cash value affect me?
Call us today for a comprehensive assessment! (305) 267-7138. You can also get a free quote here.
