Actual Cash Value v. Replacement Cost – What’s it worth to you?
Dave just left the dealership in his brand new car. Filled with excitement, he makes a left turn out of the lot without looking and fails to see the car coming his way. In an instant, his new car is damaged. His insurance policy is there for him to cover the cost of the damages, but just how much will his policy cover? Insurance companies offer actual cash value or replacement cost coverage in an auto policy. So which coverage is better?
Actual cash value (or ACV) coverage is what you would pay for a similar item at today’s cost minus depreciation. In the above example, Dave bought the car for $25,000. As soon as he left the lot, the car was only worth $22,000. With this type of coverage, the insurance company only paid Dave $22,000 although just minutes earlier he made the purchase for $3,000 more.
Replacement cost coverage is what you would pay for the item at today’s cost. Depreciation is not a factor in this type of coverage. With replacement cost coverage, the insurance company would have covered the car at purchasing price, and Dave would have been back at the lot picking out a new car.
It is important to be absolutely clear about the type of policy that you are being sold when you speak to your insurance agent. Replacement cost coverage is generally a little more expensive than actual cash value, so it is important to know what you are paying for.
Call Ion Insurance today to make sure you have the right coverage for your property!