We talk a lot about replacement cost value versus actual cash value. What’s it mean?
The simplest way to think about it: Replacement cost value (RCV) means what an item is worth new, while actual cash value (ACV) means what an item is worth used. If your valuables — furniture, electronics, clothes — are covered under a replacement value insurance policy, you can expect to be reimbursed for the cost of those items priced brand-new on the market if they are damaged or destroyed. Under a cash value insurance policy, your carrier will deduct for depreciation — the amount of wear, tear and age an item has sustained during its life — from the benefit claimed.
In short, you get more money from a replacement value policy, and RCV policies make life easier for the insurer and the insured. It’s why Gotham Brokerage Co., Inc., sells only replacement value policies.
If you opt for cash value coverage, you may save a little on the front end but you buy a lot more hassle and face a smaller payout when you need to file a claim. Depreciation can be hard to figure out — say you bought two Ottomans five years ago for $250 each. One has had a robust life in your living room — you’ve spilled salsa on it, let the cat rub it, rested your muddy-booted feet on it. The other one you’ve kept in storage under plastic. Naturally, the used Ottoman will have depreciated more. But your insurance claims adjuster has an incentive to factor in as much depreciation as possible, which is why it’s a good idea to document your purchases with receipts, credit card statements (especially year-end statements) and digital photos stored online, 20 to 30 images if possible.
For some items, though, the opposite is true. Antiques and fine art actually can increase in value with time.
Replacement value policies spare you from negotiating with your insurer over what your personal property is worth. It’s simple: RCV payments are based on what it would cost to replace your property with new, identical or comparable items. If you bought a Blu-ray DVD player two years ago, you’ll get enough back to pay for an identical or similar one provided you actually replace the player. (Smart insurers pay a portion of your benefits beforehand and the balance after you’ve proven you replaced the item; this prevents people from just pocketing the cash.)
Replacement coverage is a better way to go. We’ve got more than 50 years of experience at Gotham Brokerage to help explain why. Fill out our quote request form or give us a call at the number above to learn more about how we can help you insure your valuable belongings.
Jeff Schneider, President, Gotham Brokerage Co., Inc.