Insuring at Replacement Cost Value = Peace of Mind

Many insurance experts recommend insuring your home at replacement cost value rather than actual cash value. And many home owners (and renters) believe it also makes sense to insure their contents at replacement cost value; your personal property is worth it, and so is your peace of mind.

To understand both forms of coverage, let’s look at their differences:

Actual Cash Value (ACV)

When you insure your home and personal belongings at ACV, your coverage reflects the current fair market value. If your home is currently valued at $300,000, then that is the amount you’d receive in a total loss claim. But, while the low premiums for ACV are attractive, rebuilding a home typically costs more than fair market value. You may be hit with penalties for being underinsured. Note that insuring your home for less than 80 percent of its value will reduce your claim benefits because your coverage is based on a depreciated market value.

Replacement Cost Value (RCV)

To avoid unexpected penalties and out-of-pocket expenses, insure your home for 100 percent of its replacement value. The premium will be more expensive, but if your home is totally or partially damaged, you’ll have peace of mind and, as important, an intact savings account as compensation.

Consider RCV for your personal belongings as well. Insurance companies will require that you actually replace the damaged items, but after your deductible, you’ll receive the full replacement value. If you have expensive personal property, consider scheduling it separately. Experts recommend you choose coverage at 200 percent of the total value of your personal property.

To determine RCV of your home, consult my office or consider conducting a professional appraisal. To make sure you’re covered no matter what, opt for Extended RCV coverage. There are requirements to meet, but when it comes to everything you own, it’s always better to safe than sorry.