Replacement Vs. Cash Value

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What is replacement vs cash value?

Replacement Vs. Cash Value

Property values fluctuate all the time, and so does the cost of building materials. So something you should take into consideration when looking at homeowner's insurance policies is replacement value versus cash value. Cash value will provide you with a settlement based on the value of the property in question minus depreciation.

Replacement value takes into consideration inflation, the cost of rebuilding/replacing and does not subtract for depreciation over time. What you paid for your home five years ago may not be enough to rebuild on based on contractor rates, cost of building materials and more today.

A high definition television you purchased two years ago for $1,500 might only be valued at $800 today due to depreciation. If your plan is for replacement value, you won't have to pay the difference out of pocket. But this option tends to make your homeowners insurance rates a little higher, so it is a judgment call based on what you can afford to pay at a given time.

   

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