First – if you don’t know what your homeowners policy covers, stop reading this, go get the policy right now and check.
Welcome back. Let’s both hope it says “Replacement Cost” and not ACV. Here’s a quick example why, but first, a few definitions:
Replacement Cost – the cost to replace the item. If the same item is not available (i.e, a discontinued model for a TV), then a comparable item with comparable features.
Actual Cash Value – the cost of the item, less depreciation (e.g., wear and tear, age, etc.).
You have an old 32″ tube TV (remember those big bulky things?) from, oh let’s say 1999. It’s pretty trusty, still has a good picture, etc. If you tried to sell it, what do you think you can get for it? Let’s say $50, and that might even be a stretch. Now, the TV is destroyed in a fire. If you have ACV coverage, they will give you $50, which was the actual cash value of the TV. I just looked on Best Buy’s website, they don’t even sell tube TVs anymore. Their least expensive 32″ TV goes for around $300.
SO…you need to decide if you want $50 for the TV, or $300. For the price difference in the insurance, it is well worth it. This is just for the TV – how much do you think that old couch is worth??