With the constant bombardment of insurance advertisements on the tv, radio and internet promising to save you 15% or more, it’s important to keep in mind what you may be losing in coverage by saving money with the lowest price presented to you. Most insurance agents want to make sure their customers are carrying the best insurance coverage available that fits their budget, but there are many insurers constantly advertising that they will save you money without telling you that they plan on selling you an inferior policy.
When comparing the coverage limits on the low price insurance policy to your current policy everything may look the same, but the difference lies in the coverage form that applies to the limits, something that is almost never discussed by the low price insurance company. The coverage forms are the legal contract that state what kinds of losses the insurance company will pay for and how they will determine how much to compensate you for your lost or damaged possessions.
The coverage form that low price insurers offer on your home and belongings is the actual cash value (ACV) method, this is the same method that most insurance policies use to value cars that have been in an accident. Actual cash value states that because your items are no longer new they have depreciated in value every year and therefore you will only be compensated a fraction of what it would cost you to replace that item. Therefore the customer would need to pay the difference to buy those items all over again. Actual cash value is better than having no insurance at all, but just barely.
A good insurance policy from a reputable insurance agency will provide Replacement Cost valuation on your home and belongings. This means the insurance company will pay you the cost to replace every lost item with a brand new item of the same kind and quality. The difference in dollar value between actual cash value and replacement cost is enormous and if your home burns down the difference would easily be in the hundreds of thousands of dollars. Don’t get hoodwinked into buying an ACV insurance policy just to save 15%.