ACV Coverage: The Wrong Way To Save Money On Insurance

There are right and wrong ways to save money on your home insurance. One of the best is raising your deductible.

Want to know one of the worst ways to save? Choosing cheap coverage that doesn’t pay you fully when you have a claim.

There are two ways the insurance company can pay you in the event of a claim:

They can either pay for the cost of replacing everything that was lost or damaged as if it were brand new (this is called replacement cost)
They can pay you what your things were worth at the time of the loss (called actual cash value)

In other words, you want to measure the benefit (the claims payment) against the risk (paying more in the future).

The ABCs of ACV

Actual cash value, or ACV, does lower your premium, but it means you will be paid a lot less if you have a claim.

For example, if your five-year-old TV is stolen, you will get paid the value of a five-year-old TV - NOT what you paid for it. Think of it as getting paid the garage sale value.

Whether you have ACV or replacement cost depends on what you chose when you bought your policy. Wait, you don’t think you chose? Well, it’s possible the insurance company chose for you and didn’t ask!

ACV is less expensive so many cheaper policies use ACV to bring the cost down.

How do you find out which coverage you have? There are two places you can potentially have ACV.

Where To Find ACV

The most common is your contents, or personal property. Your policy summary page should tell you whether your contents are insured at replacement cost or ACV.

The other place where you could have ACV is harder to find. Your roof coverage for a newer home will usually have replacement cost, but as your roof ages, many policies will switch to ACV.

This means roof damage to an older home could lead to a big out-of-pocket payment for the policyholder. The problem is it’s very difficult to determine your roof coverage. The information is usually buried in your policy and you will likely need your agent’s help to find the answer.

The good news is that adding replacement cost is usually inexpensive. Make sure to check your policy to ensure you have the protection you need.

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