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On homeowners insurance .. What is the difference between Replacement cost and Acutal cash Value? what pays mo |
What pays more and what is the least expensive?? please some one explain to me in detail.. Does my home need to be insured with the market value??? Replacement cost pays more, and is more expensive. Replacement cost means, whatever it costs to replace with like kind and quality. Actual cash value means, whatever it costs to replace with like kind and quality, LESS DEPRECIATION FOR AGE. Example: You have a laptop computer that's stolen from your home. These things depreciate fast - like in two years, they depreciate to NOTHING. So, Replacement cost might be $1500 - but actual cash value is $300. Different items depreciate at a different rate. Market value is yet a THIRD valuation. For the house itself, it means "what it would cost to buy it, used". MOST of the time, for older houses, market value is significantly LESS than replacement value. Not a problem if your whole house burns down, but very few losses are total losses. Where you have a problem, is if you have a kitchen fire. The fire damage might be $30,000. Now, if the whole policy amount is "market value", well, your market value might be $50,000. You can be darned sure the insurance company isn't going to pay $30,000 on a policy like that for a kitchen fire. So BEST case scenario, you'll get "we'll fix it up sort of ok". Drywall instead of plaster, paint instead of wallpaper, no fancy trims, no fancy countertops, no custom anything. Vinyl tile floor to replace that linoleum. It's NOT going to match the rest of the house, might not even match THAT ROOM. Worst case scenario - you have a loss to 25% of the house, they pay 25% of the policy limit - leaving you with thousands in damages that you have to come up with to fix. You need to talk to the selling agent to have them explain exactly HOW that market value policy is going to cover a partial loss. Source(s): agent, 21+ years actual cash value is what you would get if you sold your stuff. replacement means buying new stuff to replace what was damaged or stolen. actual cash value will always be less, since your stuff has been used by you. can't tell you exactly what you need - ask an agent. Why insure it for market value? replacement cost is the cost it will take to build a home like yours brand new. That's the most you need to be insured for (for the structure). Anything more is extra commission for the insurance agent. Actual cash value is what a thing is worth today, as a used thing. You would never pay full price for a CD that got destroyed. You'd go to a second hand place and pay 50% of original cost to buy it. Well that is ACV. So if a fire occurred, your insurance company would take an inventory and then say well you can buy a couch at Goodwill for $50, that is what we will pay for your lost couch. The fact that your couch was a designer make with special fabric, might give you arguing room for a similar couch purchased on e-bay for $400, but you will not get it replaced. Replacement cost is you go find your couch, even if it means you have to go the manufacurer and have them make you a couch just like yours, and the insurance company will give you the money to buy it replacement. This would even mean buying those CDs you owned, even if they are not longer in print. If it can be found, with the limitations of the policy, they will pay the replacement cost. (Check the limitations. Sometimes there is fine print which says we will pay no more than $1,000 for any one item or something like that. So if you have collectibles which really can not be replaced, you may be limited to that amount for such an item. Obviously the Replacement policy pays more than ACV in case of loss. Keep in mind the companies place language in their policies to make it easier for them to back out of payment under certain circumstances. Not all losses are covered. In the Katrina disaster it became a question was the loss due to storm damage or water damage. Storm damage gives coverage, water damage does not. Replacement cost = What it would cost right now today to replace an item (also known as "full replacement cost") Actual cash value = What the item is worth right now today, taking depreciation (loss of value over time) into account Replacement cost generally pays more since almost all household items depreciate over time. Actual cash value costs less because they pay you less than current market value for any items over six months old at the time of the incident causing destruction (fire, flood, tornado, etc.) Your house should be insured ABOVE market value because you're also taking into account the items inside the house like the furniture, appliances, electronics, personal items, etc. A general rule of thumb is that you should insure your house for market value plus $10,000.00 for each room in the house where you have furniture, appliances, personal items, etc. Actual Value is what it would cost to replace it if you had to buy it today or in the future. |
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