In Standard homeowners insurance policies, the coverage is written as such that damage to the contents are covered on an actual cash value basis. Actual Cash Value (ACV), refers to the cost to repair or replace damage to your property AFTER depreciation. In a nutshell, the insurance company will calculate the replacement cost of the contents (i.e. appliances) then calculate the depreciation of those items based on the actual age of the items.
For example, if your kitchen appliances are lost in a fire and were 18 years old, the coverage for replacing those appliances is calculated using the depreciation of value over the past 18 years. In other words, no luck having enough money to buy brand new appliances of equal value. Most policies do afford replacement cost coverage on your home.
There is the option for Replacement Cost Coverage, as an add-on to your standard policy. With Replacement Cost Coverage, your insurer will pay the cost to replace the damaged property regardless of the age of the items damaged. The longer you have owned your home, the more important it is to consider this option, as depreciation will ultimately affect the outcome of your claim. The additional cost to add replacement cost coverage is about 10% higher than that of actual cash value, but well worth its’ weight in gold to protect your personal property.