What You Need to Know About Your Contents Insurance Claim

If you have homeowners insurance or renters insurance you need to understand your rights. Most policies which include personal property or contents fall under two forms of coverage: replacement cost and actual cash value.

Replacement cost value means what you would expect: your property is covered up to the amount of the manufacturer’s suggested retail price (plus sales tax and shipping handling if the item is not available locally) of a new or similar item. Your policy may have a provision that limits the initial payment to the “actual cash value”  (we’ll discuss that in more detail below) with the difference payable upon proof of replacement of the item. What is important to remember is that your policy provides coverage for the cost of a new item. This is true whether your received the item as a gift; purchased the item used from a garage sale, craigslist, or second hand store; or purchased the item on sale. Many insurance companies will provide you with a form when you submit your claim and ask how much you paid for the item.  The amount you paid for the item is irrelevant in determining the amount of your claim; the cost of replacement is the only amount that matters.

Whether you have replacement cost coverage or actual cash value coverage, you will likely be presented with an “actual cash value” payment for your items.  “Actual cash value” is a term used by insurance carriers to reduce the amount of your payment.  Most policies will define “Actual cash value” as the replacement cost of the item minus the applicable depreciation. To determine the applicable depreciation, insurance companies use a method that even their own employees can not explain. Most carriers define “depreciation” as the useful life expectancy of the item minus the age of the item.

For example, some insurers state that the useful life expectancy of wood furniture is 25 years. How they came to this conclusion is anyone’s guess but as you can see below it is very advantageous  for the Insurance company. If you have a dining room suite that you purchased 15 years ago for $4,000, the Insurance company may determine the applicable depreciation  of the furniture to be 60%  (15 divided by 25) leaving you with an actual cash value of $2,400.

There are numerous problems with this creative math employed by insurance carriers. First, the amount paid for the item is irrelevant, it is the cost to replace a new dining room suite using similar materials and construction that is the starting point. Second, the amount of depreciation should be determined based on the actual condition of the item, not a computer formula. To see how some insurance companies explain actual cash value, watch the clip below.

Don’t let the Insurance Company convince you that “actual cash value” is all your property is worth. If you are having issues with your personal property claim, feel free to contact us using the form above or at 1-888-252-4668. We may be able to help you recover what you truly deserve.