Your homeowners insurance policy can offer financial protection in the event of an unexpected disaster involving your home or personal property. But how you will be reimbursed following a claim depends on the type of coverage you have. There are two main valuation methods when it comes to homeowners insurance—replacement cost coverage and actual cash value coverage. By understanding the difference between these valuation methods, you can make informed decisions about your homeowners insurance and secure coverage that meets your needs.
Although replacement cost coverage and actual cash value coverage can both offer financial protection in the event of a claim, the amount that your policy will pay out differs between these two valuation methods. Here are the key differences:
This form of coverage can be especially beneficial in protecting against major losses, such as significant damage to the physical structure of your home or expensive items within your home. However, keep in mind that replacement cost coverage typically requires you to pay a higher premium. In addition, remember that you will only be compensated up to your policy limit amount—if you experience a covered loss that exceeds your policy limit, you may have to cover the difference. If you are concerned about the risk of a covered loss totaling more than your policy limit, be sure to consult your trusted broker to discuss additional policy options—such as guaranteed replacement cost coverage or extended replacement cost coverage—which can provide further financial protection.
Although this form of coverage typically offers reduced compensation in the event of a covered claim, you will likely save money on your policy premium. Actual cash value coverage can be more suitable for individuals that live in low-risk areas (e.g., locations where incidents such as heavy winds, fires or theft are less common) or own fewer expensive items.
There are pros and cons to both replacement cost coverage and actual cash value coverage. In order to select the best coverage that meets your specific homeowners insurance policy needs, follow these steps:
There are several factors to consider when determining which type of coverage is right for you, but you don’t have to navigate this decision alone. Neckerman Insurance Services is here to walk you through your homeowners insurance policy and provide expert guidance regarding which coverage option is best for you, your belongings and your wallet. For further coverage guidance, contact us today.
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