When you’re purchasing a homeowners, renters or condo insurance policy, you have numerous options available to customize, tweak and alter the policy so that it’s just right for you. No more coverage than you want/need, and no less.

And when it comes to insuring your possessions, you have two types of coverage options:

  1. Actual Cash Value
  2. Replacement Cost

One of your most important decisions will be to answer this question: do you want your claims settled on an Actual Cash Value basis, or on a Replacement Cost basis?

Put differently, when you have a claim, do you want to replace your possessions by souring garage sales, or by going to your favorite department stores?

With replacement cost coverage, the insurance company will cover the cost of replacing property that is damaged or stolen, up to a maximum dollar amount.

With actual cash value, the insurance company will cover the cost of replacing the property minus an allowance for depreciation.

If you have, say, older furniture, that allowance could be quite significant. Put simply, after a claim occurs, do you want to replace your furniture that was destroyed by shopping at garage sales, or do you want brand new furniture from your favorite furniture store?

Unless your policy specifically says it provides replacement cost coverage, the coverage is for actual cash value.

Replacement Cost Coverage is the better option for you.

Tip. Remember, homeowners policies also have limits on coverage for such items as jewelry, fine art and computer equipment.

If you have significant amounts of jewelry, fine art and computer equipment, as well as any valuable collections (coins, baseball cards, etc.), there probably isn’t enough coverage in the standard homeowners policy for these items.

Your homeowners policy also provides coverage for your possessions that are, for one reason or another, transported elsewhere and subsequently damaged, lost or stolen. In fact, if your car is stolen and you have, say, hundreds of CDs in it, you would make a claim on your homeowners policy for the CDs, not your auto policy.

Tip. Keep in mind, though, that your homeowners insurance has a deductible. Unless the property lost has a value significantly greater than your deductible, it may not make much sense to file a claim.

Why not ACV?

If you choose Actual Cash Value coverage on your home, condo or renters policy, you’ll save a few bucks a year, but if you have a claim, you need to be prepared for disappointment.


Let’s take an example. You have ACV coverage on your policy and you suffer a small kitchen fire. It’s not terrible, but there’s enough damage that your furniture and clothing needs to be replaced because of the smoke damage.

With ACV coverage, your insurance company is going to deduct an amount for depreciation when settling your claim. So when you replace your 8-year old couch with a brand new couch, you only get reimbursed for a fraction of what you spent (your insurance company only owes you for an 8-year old couch, not a brand new one).

Your other option would be to find an 8-year old couch. And how comfortable are you going to be with someone else’s couch in your living room?

The result will be the same when you replace your clothing. You’re not reimbursed for ‘new’, only for what the property (furniture, clothing, etc.) was worth at the time it was damaged.

This headache does not exist with Replacement Cost Coverage. Your insurance company reimburses you, up to the limit of insurance you have, to replace your property. Essentially, you replace ‘old’ property with ‘new’ property.

Tip. For your own protection, you should take written and visual (still pictures or video) inventories of everything you own in your home and in other buildings on your property. Include all furniture (indoor and outdoor), appliances, stereos, computers and other electronic equipment, hobby materials and recreational equipment, china, silverware, kitchen equipment, linens, jewelry and clothing.

For the major items (computers, televisions, stereo systems, etc.), write down the serial number, make or model number, purchase price, present value and date of purchase of each item. If you have the receipts for the items, attach them to the inventory. Make at least two copies of the inventory and store one of those copies offsite – a safe deposit box is a good place. Store the pictures or video of the inventory offsite as well.

Even with Replacement Cost Coverage, it can be extremely difficult to recall everything you had in your home, condo or apartment if you find yourself in a claim situation. The home inventory will make the claims process much easier for you, and help you make sure everything that was damaged or destroyed is replaced.

If you’d like to learn more, contact one of our Licensed Advisors . We’re here to help.