Insurance has SO MANY definitions, and it can be hard to keep up with all of them. One of the questions that pops up the most when it comes to home insurance is: “what IS replacement cost?” Most people have replacement cost on their homes because their lending institution requires it as a pre-requisite when they purchase their home (more on that later), but there’s also replacement cost coverage on your personal belongings as well. Generally, it’s included in your policy, but sometimes it can be optional. If you don’t have replacement cost coverage on your belongings, then you probably have Actual Cash Value (ACV) coverage instead.
What does it mean though? Short and sweet answer: if you experience a covered loss, and among the things you lost were: a 60 inch LED TV, a MacBook Pro that you bought new in 2014, and a living room furniture set that you bought in 2009, you would be paid in two different ways, depending on the coverage.
What pays out more: ACV or Replacement Cost?
If you had actual cash value coverage, you would be paid whatever the going rate of a 2014 MacBook Pro is now, as well as the going rate for the 2009 furniture set, etc. These items depreciate and aren’t as valuable as they were brand new, so you won’t get as much back when you make your claim.
If you had replacement cost coverage, you would get back what you paid for their items when they were brand new so that you can replace them.
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