Buying home insurance is one of the best ways to protect your home. The policy will help cover the cost of repairs or replacement if the structure is damaged in a fire, act of vandalism, or other disaster. When browsing policies, you’ll need to consider how the insurance provider will pay for damages. Most providers offer policies with either replacement cost provisions or actual cash value. Here’s what you need to know about these two pay-out methods.

Replacement Cost Policies

Replacement cost policies are thought by many homeowners to be the best options on the market. This type of home insurance coverage pays for the full replacement of any items damaged when you file a claim based on current market values of the items. For example, if your house is destroyed by a fire and you file a claim with a replacement cost policy, the insurance company will pay for the cost of rebuilding the home with comparable materials and furnishings — even if the materials are more expensive than they were when the home was built. The same is true for the items housed inside your home. If the television is stolen, the policy will cover the cost of replacing the item with a comparable model.

Actual Cash Value — ACV — Policies

ACV home insurance is a bit more involved. When you file a claim, the insurance adjuster looks at the cost of materials or replacements and then factors in depreciation based on the age of the house. The adjuster will look at the cost of replacing the materials at a fair market rate at the time the claim is filed.

Then, they’ll consider the depreciation of the materials and any wear and tear the home saw before the claim. This means the amount the insurance company is willing to pay out may be lower than what you’d receive with a replacement cost policy. However, this does mean the cost of coverage is typically lower than replacement cost policies, making them an ideal choice for homeowners looking for lower premium payments.

The right type of coverage for your needs may not be what you think. Schedule an appointment with Consolidated Agency in Rochester, NY. Their experienced insurance agents have helped residents find the best coverage for their homes, cars, and businesses since 1988. They’ll work with you to find the best policy possible at a price you can afford. Learn more about their home insurance coverage online and call (585) 467-4110 for a free insurance quote today.