Contents Valuations

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  • Replacement vs Actual
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Replacement Cost Value vs Actual Cash Value

We Insure does not cut corners when it comes to the concept of content coverage in homeowner’s insurance. Our goal is to educate our customers on the true value of their home and its contents, starting with the concepts of contents coverage related to losses.

Why We Educate Our Customers

We like our customers to understand the true value of their property when it comes time to replace any lost or damage items. To us, their content value is money that can be used to repair, replace, or even reimburse themselves with after any unforeseen circumstances.

Replacement Cost Value vs Actual Cash Value

Replacement Cost Value

Added value for contents

Not standard policy

Does not suffer from depreciation

Acts as full reimbursement

Actual Cash Value

Standard Insurance Value

Suffers from depreciation

Can loose value from court decision

Considers age, wear and tear

Insurance Plans

H03: Open Perils Policy

This policy includes replacement value costs for the property (dwelling). The contents of the property are covered using either replacement cost or actual cash value (replacement cost less depreciation). While most mortgage lenders will require replacement cost coverage for the dwelling, they are less concerned how your contents are covered. The coverage and pricing difference between these two options can be substantial. Ask your agent about the difference.

H08: Named Peril Policy

content valuations explained to couple

This homeowner’s insurance policy does not cover property with replacement cost but instead covers the property using actual cash value. Some carriers may offer an endorsement to buy back replacement cost coverage for the dwelling.

How We Calculate the Value of Your Property

At We Insure, we understand how different insurance providers will calculate the value of your lost property. While the actual cash value (ACV) or market value is what insurance companies prefer for reimbursing policyholders, many homeowners would prefer replacement cost of damaged or stolen property.

Calculating Depreciation

calculate the value replacement compared to actual cash value

What Does “Replacement Cost” Mean?

The “replacement cost” is the cost to replace your property with property of similar quality. This applies to the price of the item, which is considerably different at this point in time compared to when you first purchased it.

What is “Actual Cash Value”?

The “actual cash value” or “fair market value,” is the amount a buyer would pay to replace an item with new property and quality, less depreciation. There are debates on whether depreciation includes obsolescence (loss of usefulness as a result of outmoded design, construction, etc.).

The latter value compensates you for the actual cost of replacing property, without the deduction for depreciation. However, actual cash value is equal to the replacement cost minus any depreciation (ACV = replacement cost – depreciation). This value represents the dollar amount you could expect to receive for the item if you sold it in the marketplace.

actual cash value pile of money
replacement cost pennies

What’s the Difference Between Them?

“Depreciation based on a combination of the category and age of the property with its subjective assessment.”

Depreciation, or the lost value of your property due to damage over time of ownership. The key term for the difference between replacement cost and actual cash value is the deduction for deprecation. Homeowners with a policy that focuses on ACV only pay out an amount equal to replacement cost minus a deduction for depreciation. However, both are based on the cost today to replace the damaged property with new property.

“The Couch Example”

When it comes down to understanding Actual Cash value, think about it in terms of monetary value, such as the couch metaphor. You bought a couch for $2,000, which was lost when your home was damaged by a fire. This couch, covered by your insurance claim would be returned to you through different monetary values:

the couch example replacement value homeowners insurance

Under Replacement Cost Coverage, if the same or similar couch now costs 2,400, you would receive a check from your insurance carrier for around $2,400, which is a net gain due to the current value of the couch today, and the difference paid between its current actual value and its previous value.

Under Actual Cash Value, you may only receive $1,500, as that is the cost of the couch minus the depreciated value from assumed wear and tear over time.

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Coral Gables, FL 33146

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