Actual Cash Value vs. Replacement Cost

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When looking for the right insurance coverage for your family, it can be easy to get confused and overwhelmed by all of the terminology. One of the most important and confusing parts of an insurance policy is how the insurance provider will pay for damages.

There are two main types of payout methods that insurance providers offer, actual cash value and replacement cost. A replacement cost payout option means that your insurance provider will cover the cost to replace an item with another item that is made of comparable material and quality that can be used for the same purpose that the damaged or destroyed item was used for. An actual cash value payout option means that your insurance provider would cover the cost to replace a destroyed item with a new item that is of the same quality, while taking depreciation into consideration.

The only difference between the two payout options is deprecation. Actual cash value will take depreciation into consideration, while replacement cost will not. It is important to keep in mind that both payout options are based off of what today’s cost would be to replace the item with a new item.

When deciding on the right payout option, it is important to take the price of the item into consideration. If you cannot afford the cost to replace an item, you should consider replacement cost so that you are not financially devastated in case of a loss.

For all of your insurance needs throughout Idaho to ensure that you are covered in any unfortunate situation, contact Idaho Insurance / Affordable Insurance in Caldwell. As an independent insurance agency, we will make sure that you have the right amount of coverage and the right payout option that will best fit your needs.

Posted on: November 28th, 2014 at 2:00pm by Idaho Insurance Blogging Team. Filed under: Article Archives
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