May 12, 2017

Homeowners Insurance Info: Actual Cash Value vs. Replacement Cost

Most homeowners insurance policies include personal property coverage, but they don’t all offer the same type or amount of protection for personal belongings. How well your belongings inside your Woburn, MA home are protected will largely depend on whether your home insurance policy provides actual cash value or replacement cost personal property coverage.

Residents Should Know If Their Homeowners Insurance Includes Actual Cash Value or Replacement Cost Personal Property Coverage

Personal Property Coverage Safeguards Personal Possessions

Personal property coverage is designed to provide insurance for personal possessions that are kept in homes. While the exact possessions that a particular policy’s personal property coverage safeguards can vary, most policies’ personal property coverage helps protect belongings like:

  • Furniture and appliances
  • Clothes and shoes
  • Makeup and accessories
  • Toys and books
  • Area rugs and floor mats

Many policies’ personal property coverage also offers some protection for highly valuable items, such as jewelry, artwork, musical instruments, collectibles, furs, and silverware. There may be a low limit on how much a policy will pay for these items if they’re lost or damaged in a covered incident, though. Often, Woburn, MA residents who have possessions like these need to purchase additional coverage from their insurer, either by selecting a higher limit or getting a rider.

Personal Property Coverage Limits Are Expressed as Percentages

The amount of personal property coverage that a home insurance policy provides is usually expressed as a percentage of the policy’s dwelling coverage, which generally insures the structure of a house. For instance, a policy’s personal property coverage might be 50 percent of its dwelling coverage. If its dwelling coverage limit was $200,000, its personal property coverage limit would be $100,000.

Most home insurance policies’ personal property coverage is either 50 or 70 percent of the dwelling coverage limit. Massachusetts homeowners can usually purchase additional personal property protection if they want more, though.

There Are Two Kinds of Personal Property Coverage

The exclusions and limits of your home insurance policy’s personal property coverage, of course, greatly affect how much protection you have for your belongings. The type of coverage also will have a great impact on how well your belongings are insured. There are two types of personal property coverage: actual cash value coverage and replacement cost coverage. Each provides a different amount of protection.

Actual cash value coverage covers personal belongings for how much they’re worth, or their actual cash value. This coverage takes into account depreciation, so possessions often aren’t covered for their full purchase price. In theory, the reimbursement you’d receive from a homeowners insurance policy that has actual cash value coverage would be the same as if you sold them — and that may not be enough to purchase all new belongings.

Replacement cost coverage, in contrast, provides much more protection. Instead of only covering belongings for their depreciated value, replacement cost coverage provides enough coverage to replace items if they’re lost or damaged in a covered incident. With replacement cost coverage, you normally don’t need to worry about making up the difference between your belongings’ depreciated value and the cost of buying new things yourself. The insurance policy generally covers that difference (according to its terms and conditions).

Check Your Policy with the Help of a Homeowners Insurance Agent Serving Woburn, MA

If you don’t know what protections your homeowners insurance policy’s personal property coverage offers, contact an independent insurance agent who serves Woburn, MA. An agent will be able to review your policy with you and explain exactly what possessions are covered and how well they’re covered. If you’d like to make any changes to your coverage, an agent can help with that, too.

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