If you had a home fire that destroyed your home theater room and everything in it, will your homeowners insurance cover the cost of replacing your furniture and all your electronics? The answer: it depends.

Actual Cash Value (ACV)

If you have “Actual Cash Value” coverage the answer is no. Your insurance carrier will only pay fair market value. That is insurance terminology for the cost of acquisition less depreciation. So, if you assume that your items depreciate 10 percent per year and your fire occurs three years after you completed the home theater room you will get a check from your insurance company for only 70 percent of the amount you paid.

Replacement Cost Coverage (RCC)

However, if you have replacement cost coverage in your homeowners insurance you will receive the current retail price of replacing the items you lost to the fire. Even if the price of the goods rose 10 percent each year you would get 130 percent of your acquisition costs.

In some states if you do not repair or replace your loss and have ACV coverage, the insurance company does not have to pay you anything. But, if you have RCC than the insurance carrier must pay you replacement cost even if you do not repair or replace your damaged items.

Reach out to Insurance Connection for an instant insurance quote or to learn more about Actual Cash Value vs. Replacement Cost.