Do you know the replacement details on your policy?

What’s the difference between the actual cash value and the replacement cost of an insurance policy? These terms are on most insurance policies and it’s important to know how they apply to your policies to avoid disappointment if you ever have to make a claim.

Actual Cash Value

This is the cost to replace property, minus depreciation and applies to items that don’t hold their original value. Electronics, vehicles and baby equipment are good examples of items that would be replaced at actual cash value. Most auto policies are also based on actual cash value. But there is an exception on new vehicles, where depreciation protection is provided for a set amount of time to offset the significant depreciation that occurs when you drive a new car off the lot.

Replacement Cost

This insurance term is clearer. Replacement cost refers to the cost to replace the damaged or lost property with new items that are as close as possible to whatever was damaged. Homes are a good example of replacement cost property, as most people want their home replaced as close to the original structure as possible if it is damaged. Replacing furniture is another good example. If you bought a couch for $1,000, it doesn’t mean you will get $1,000 for the same couch. If your adjuster can find the same couch for $925, that’s the model you will receive. But, if you can’t find an identical couch, $1,000 is the most cash payment you will ever receive to replace it.

Estimating the cost of insured buildings, homes, vehicles and personal items can be challenging. But it’s important to ensure you are properly covered in the event of damage or a loss. Contact your insurance company for assistance in evaluating buildings or dwellings. When it comes to personal property, always keep your receipts, especially on big ticket items to limit any disputes if you have to make a claim. Completing a home inventory of personal property, complete with associated values, is also a good idea. Consider providing a copy of this list to your insurance company and update it every three to five years. An updated list will also help in the event of a claim.

Keep in mind, replacement cost insurance typically costs more than actual cash value coverage.

If you’re unsure about what kind of coverage you have, contact your insurance agent or broker for more information on insurance policies, including advice on actual cash value and replacement cost coverage. They can advise you on your options.

Want to learn more? Contact an agent at Usborne & Hibbert Mutual today.