When you purchase an insurance policy for your possessions, you have the option of choosing between replacement cost or cash value protection. Part of your premium cost depends on the type of coverage you choose. Understanding the differences between these two types of coverage can help you make the best decision.
Replacement cost coverage
With replacement protection, an insurance company will pay you for the actual replacement cost of your damaged or stolen property. The amount of compensation will be based on replacing your property with a similar new item. You should note that your policy limits could reduce the amount you receive.
Cash value coverage
The cash value of your property includes depreciation due to age and wear, if applicable. Formulas are used to determine how much an individual item goes down in value over time. You would receive the amount of the replacement cost minus the depreciation. Choosing cash value coverage can reduce the cost of your insurance but you receive lower compensation for losses.
Little and Sons Insurance Services will be glad to provide further information on the differences in coverage and how it effects you. They can go over your current coverage and ensure that you have the right protection for your individual needs.
