When filing a claim on your home insurance policy, you may need to determine the value of your assets. This value is not simple to determine in some situations. Most types of assets depreciate over time. Their values are much less now than when you bought those items a few years ago. In many cases, this plays a role in how much your insurer provides on a claim. Here’s a closer look at what you can expect.
What Type of Coverage Do You Have?
Some types of home insurance include actual value coverage. Others offer replacement coverage. Most of the time, this applies to the assets with your home, such as your furniture, personal items, electronics, and other belongings.
In replacement coverage, the home insurance policy pays a set amount of money based on the cost to replace the item. In actual value coverage, the depreciated value is a component of the process. Your insurer uses the current value of the item to determine how much to provide to you.
Consider an Example
Let’s say you buy a new sofa for $1,000. You use it, love it, and get a few stains on it. It’s normal even if it remains in very good condition, for the value to fall. If you were to sell it to a neighbor, your neighbor may not pay that $1,000 for it. Rather, he or she may only give you $500 for it, if it is in good condition. That change in value is an example of depreciation. It happens to just about all types of assets you own.
Some items, such as collectibles and jewelry increase in value over time. Most other belongings do not. If you have cash value coverage, your home insurance policy may not provide you with enough money to buy a new item. It will only pay the value of the item at the time of the claim.
For example, if a fire occurs and you lose the sofa to it, your insurer would only pay you the value of that item based on its condition right before the fire. In this example, that would be $500. You cannot use that to buy a new couch of the same value as the old one.
Depreciated value is common in home insurance policies. If you hope to have replacement value, a higher level of protection, you can do so. Your insurer can work closely with you to provide more protection for your assets.
Also Read: 5 Tips for Creating a Home Inventory for Insurance Purposes