When you shop for homeowners insurance, you’ll want to be sure your policy has the essentials, including coverage to protect your home. But what about your personal belongings? Insurance companies offer two types of personal property coverage: replacement cost value (RCV) and actual cash value (ACV).
What are the types of personal property coverage?
Personal property coverage provides funds to repair and possibly replace the contents of your home (subject to any specific limits)—such as furniture, clothing, sporting goods, or electronics—when you experience a covered event.
Replacement cost is the amount it would cost to replace an asset at the present time, according to its current worth. If, for example, your 5-year-old laptop is stolen, replacement cost will reimburse you for buying a new laptop. Meanwhile, actual cost value is the amount equal to the amount necessary to replace the property, minus the depreciation of damaged or stolen property, at the time of the loss. For example, an insured couch you own might cost $1,000 brand-new today, but if it’s been owned for five years, it has depreciated by $400 and the actual cash value is $600.
How does replacement cost work?
If your policy indicates that you’ve purchased the replacement cost option, you may be eligible for reimbursement once you have replaced the item. Your insurance claims representative can confirm whether you have this additional option, and can provide a more detailed explanation of the coverage and process.
Insurance companies may recommend you keep a home inventory checklist to make filing claims easier following a loss event.
What if I need to rebuild or repair my damaged home after a covered event?
Your home is protected by dwelling coverage, also called Coverage A. The Coverage A limit is based on a rough estimate of the cost to rebuild your home. Extended replacement may offer an additional 50 percent above the Coverage A limit of your homeowners insurance policy, and this coverage may help when the estimate to rebuild falls short. (The Coverage A limit is based on normal rebuilding conditions; construction prices typically surge following large catastrophes.) Your insurance claims representative can confirm whether you have this coverage, and can provide a more detailed explanation of the coverage and process.