Keeping Nashville Covered – Understanding Insurance Values

Keeping Nashville Covered – Understanding Insurance Values

Over the past few weeks, I’ve shared with you the basics of what insurance covers, how its priced, and how to manage your costs.  I hope these blog posts have helped give you a basic understanding and give you starting talking points with an insurance agent.  In this final post in the series, I want to help you understand a sometimes tricky concept – Replacement Value (RV) compared to Actual Cash Value (ACV.)

When you purchase your insurance policy, you will have to decide if you want to have whether you want your contents covered for replacement or actual cash value.  There is a price difference.  ACV is less expensive than RV.  But like all things, you get what you pay for.

Actual cash value means that if you have a loss, your insurance company will pay the value of the item at the time of the loss.  So, for instance, if all of your contents are lost to a disaster or fire, your clothing will be paid for as used clothing based on its estimated age.  Your television will be valued at its age.  A coat that is three years old and cost $150 may have an actual cash value of only $25.  A TV that cost you $2,000 when you bought it new two years ago may have depreciated to $400.

If you select RV, you will be covered for the amount it costs to actually replace the lost items.  So you would be reimbursed for the full cost of the same coat or television.  Keep in mind two things, though.  The cost of items changes over time.  So the $2,000 TV from two years ago may only cost $1,500 now.  You would get the amount to replace the same make and model of TV.  The insurance company will not upgrade you to a newer generation of TV that may now cost $2,000.  The coat, however, may still cost $150.  Or it may be no longer sold, in which case a comparable coat priced at $150 would likely be approved as a covered loss.

The second thing to know when filing a claim with RV is that you will have to provide proof that you actually replaced an item.  The initial check the insurance company will cover for your loss will be ACV.  Once you provide receipts to the insurance company that you replaced your lost items, they will issue another check to cover the difference you spent.  The second check will make it so you are reimbursed to the full RV level.  If you have a collection of VHS tapes stolen, the insurance company will pay ACV.  If you choose not to replace your VHS tapes because you forgot you had them and haven’t watched them in twenty years, that’s fine.  But the insurance company will not pay you any additional monies.

I hope this post, as well as the previous ones, have given you an empowering feeling of how to buy insurance, what it costs and why, and help you make a fully informed decision in buying coverage for your new home.

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