| Ask 10 people which coverage they have, and 5 will | | | | original purchase price to repair or replace the item. |
| probably say they don’t know. If you are one of | | | | This is typical with electronics. A CD player that was |
| the latter, read your policy or call your insurance | | | | purchased when they first hit the shelves cost a |
| agent to determine whether you have cash value or | | | | great deal more than what you would pay for one |
| replacement cost coverage. Payment from the | | | | now. Your payment would be for the amount that |
| insurance company will vary widely between the two. | | | | one costs today, not what you paid for it. |
| No matter what type of insurance you have, if you | | | | CASH VALUE |
| can provide a list and photographs (personal property | | | | Also known as fair market value, the actual cash |
| inventory) of your belongings, you’ll receive a | | | | value takes depreciation into consideration. Most |
| greater settlement than if you have no | | | | often the insurance company will use a formula to |
| documentation to support your claim. In fact, the | | | | determine your settlement, based on the |
| first thing you’ll need to do is create a list for | | | | replacement cost less depreciation. Sometimes these |
| the insurance adjuster, usually room-by-room, of | | | | numbers are also based on a combination of the |
| everything that was damaged, destroyed or stolen, | | | | adjuster’s opinion after seeing the item (or a |
| plus when it was purchased and what it cost. | | | | photograph) and/or assumed wear and tear. |
| This information will be used to determine the | | | | To explain the depreciation formula further, let’s |
| amount of payment you’ll receive from your | | | | consider the family room sofa, which has a 10-year |
| insurance provider. | | | | life. You purchased it 5 years ago for $1000. A |
| REPLACEMENT COST | | | | tornado destroyed your home and all the contents in |
| If you have replacement cost coverage, then you | | | | it. Since the sofa is 5 years old, it has a depreciated |
| should have a favorable settlement when you file a | | | | value of $500 (50% of the expected life of this |
| claim. The insurance company will provide payment | | | | piece of furniture = 50% of the purchase price). This |
| for the actual cost of purchasing a new, identical or | | | | is the amount you’ll receive when you submit |
| similar item. They will REPLACE the item (once you | | | | your insurance claim. However, when you buy a |
| provide them with a list itemizing your losses). | | | | like-quality sofa, let’s assume it now costs $1300. |
| One exception to this statement is if you reached | | | | Upon submitting your receipt to the insurance |
| the limit of your policy. For example, your policy has a | | | | company, they will pay you an additional $800 ($1300 |
| limit on many categories of items. Most have a | | | | less the $500 you already received for the |
| jewelry limit of between $1000 and $3000. If you | | | | depreciated value). |
| have a theft of $5000 worth of jewelry, your | | | | Policies are different from company to company, and |
| payment would max out at $3000 unless you have a | | | | even from person to person. So, check with your |
| rider on your policy to cover the additional amount. | | | | agent to make sure you understand what type of |
| Another exception would be if it costs less than the | | | | coverage you have, and make changes accordingly. |