homeowners insurance: replacement cost vs. actual cash value

Perish the thought, but let's say your house and valuables are destroyed after a tornado, fire, or other major incident. It can really pay to know the difference between actual cash value and replacement cost on your homeowners insurance policy — in fact, it may save you (and your wallet) a world of trouble when it comes time to make a claim.

how homeowners insurance can help repair your home and replace your valuables after a loss

The good news is that your standard homeowners policy will likely help pay to repair or replace your abode and belongings after a major incident like a windstorm, fire, or home break-in — but the question is, how?

What is actual cash value (ACV)?

When you make a claim on your homeowners insurance, your insurer determines how much to pay you by calculating the cost to repair damaged parts of your home and replace destroyed belongings with new, similar ones.

If your home policy covers the repairs strictly on an ACV basis, that means they'll take the items' value at the time of purchase and subtract the amount they've depreciated since.

So if you originally bought a flat-screen television 5 years ago for $1,000, but that same flat-screen's ACV is only $500 today because of depreciation, your insurer will write you a check for $500 — regardless of how much it actually costs to replace your TV.

What is replacement cost (RC)?

The RC is the amount necessary to replace damaged or stolen belongings with new ones. Unlike ACV, replacement cost doesn't take depreciation into account.

Let's use our example of the 5-year-old flat-screen that you originally purchased for $1,000. If it's destroyed in a covered incident, replacement cost coverage on your home policy would ensure you get enough cash to pay for a new, comparable TV.

How ACV and RC work at Esurance

A lot of home insurers offer replacement cost coverage as an optional add-on to your policy. But at Esurance, we include it automatically as part of your standard dwelling and personal property coverages.

If you experience a loss of less than $2,500, we'll automatically pay the replacement costs for your damages. If the loss is more than $2,500, we'll first pay the ACV — and once you repair your home and/or replace your valuables, simply provide us with receipts within 180 days of your ACV payment and we'll pay the difference owed to make up the replacement cost. Either way, you win — just the way we like it.

If you're an Esurance customer and have questions about a claim or anything else regarding your policy, feel free to give us a call at 1-800-ESURANCE (1-800-378-7262), where we're available at these times.

you can depend on affordable homeowners insurance from esurance

At Esurance, we know how hard you've worked to buy a home. That's why we offer protection for your abode, belongings, personal liability, and so much more at a price that doesn't put a dent on your bank account — now you can safeguard what matters most to you without sacrificing your hard-earned savings.

On top of affordable rates, we offer a wealth of discounts to help you keep more green in your wallet and get the most out of being a homeowner. If you haven't already heard about all the perks of joining Esurance, we're confident you'll find out when you get a get a quick, free quote online or speak with our agents at 1-866-439-5633.

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