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You're typing away on the trusty laptop you just bought six months ago for $1,000.  The day is perfect, so the window is open and you’re enjoying the slight breeze.  It’s time for a stretch, so you head to the kitchen for a glass of water.  When you get back – no laptop.  The cords are dangling and you have a really sick feeling in your stomach.  Fortunately you backed up that morning and you have home insurance.  Here’s where the difference between actual cash value and replacement cost comes in.  You made a choice when you bought the insurance – cash value or replacement. 

Actual Cash Value

If you have actual cash value coverage, you're paid the original value of your property minus depreciation, which accounts for wear and tear.  For example, you may receive $750 or less for your laptop.   Insurance companies use standard formulas and subjective judgments to come up with this value. This coverage is cheaper because it offers less in compensation. It is also the method preferred by most insurance companies for reimbursement. 

Replacement Cost

If you have replacement cost coverage, you receive enough money to replace the property with something of comparable value. Theoretically, you would get $1,000 for your laptop. In practice, the insurance company cuts you a check for the actual cash value or $750.  Then you go out and buy a new laptop and submit the receipt to the company. The company then gives you the additional difference between what you spent and what they gave you, which amounts to $250. 

Choosing Actual Cash Value may save you come money over time.  If you have a disaster, you’ll be glad you have Replacement Cost. 

 Dean & Draper is a Trusted Choice insurance agency representing over 200 insurance companies. For over 33 years we have offered a trusted freedom of choice to our clients.  ContactUs.

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