Regardless of what type of dwelling you live in, one thing that home policies have in common is coverage for your own personal belongings — including everything from your entertainment system down to your very last sock. How you cover your personal belongings, though, can mean the difference between replacing everything you lost during a disaster and barely having enough money to get back on your feet. Learn how to cover your assets to make sure you are properly insured so you can get back on the road to normal after a loss.
Replacement Cost versus Actual Cash Value
There are two types of payouts available on most home insurance policies: Replacement Cost and Actual Cash Value (ACV). Knowing the difference between these two options on your policy can make a huge difference in how much money you get from your insurance company if something happens.
Actual Cash Value coverage on your home policy means that if your personal belongings are destroyed, your insurance company will pay you how much your items are considered to be worth. This means that if you took your items to a consignment store or sold them at a garage sale, the amount you could expect to sell them for would be the amount your insurance company would give you. Needless to say, your used clothing probably wouldn’t be worth much, unless you have some authentic costumes from a blockbuster movie set. This is the least expensive option on home policies, because you likely won’t get very much money if there is a disaster.
Replacement Cost is the amount of money it would cost to buy the item you have in your home now. If you have a 63-inch 3-D television, it would cost a lot more to buy a new one than you could sell your used one for at a garage sale. This is the idea behind replacement cost; if you have this option on your home policy, your company will pay you what it would actually cost to replace your personal belongings by buying similar items at the store. This option will get you the highest payout for your covered belongings, so it costs more than ACV coverage.
Some types of personal belongings have limits to how much your insurance company will pay you for them. Jewellery, computers, and artwork are some common examples of items that have limits to them, because they are often much more expensive than other personal items.
If you have personal belongings that fall into these categories, you may want to consider scheduling these, or purchasing special limits of insurance on them so you can get the full value of your items if something happens. When you schedule items, your insurance agent will ask you for descriptions of individual pieces, so be prepared to describe that $3,000 emerald ring your grandmother left you, in addition to having it appraised.