To continue on with our Insurance 101 blog series lets discuss Replacement Cost and Actual Cash Value. Anyone who has had to purchase insurance or file a claim has most likely heard these terms. Do you want Replacement Cost or Actual Cash Value? Do you know the difference?
The wording of each phrase can easily be confused. In fact if you are the claimant you can easily tell yourself that Actual Cash Value sounds like the better choice – right? Wrong.
1. Replacement Cost – The amount it would cost to replace an asset at current prices.
2. Actual Cash Value – The amount equal to the replacement cost minus depreciation of the property at the time of the loss.
Basically, Replacement Cost means that in the event of a claim, you will be paid the current market price for a current market item. This allows you to go out and purchase the item at today’s prices with nothing out of pocket but your deductible. Actual Cash Value will be calculated by valuating Replacement Cost then subtracting for depreciation. Depreciation is a reduction in the value of an asset with the passage of time. With Actual Cash Value, the older the item, the less you will be paid for it.
Replacement Cost policies always have a higher premium, however you will always be paid a higher amount for a claim. We recommend choosing Replacement Cost if possible, you won’t regret it when your claim check comes in.
*All Worth Ave. Group policies are Replacement Cost.