What is the difference between actual cash value and replacement cost in insurance?

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Good question.

When you purchase an insurance policy for an investment property one of the issues is whether you should purchase an actual cash value or a replacement cost insurance policy.

The actual cash value policy is less expensive to purchase but does not have as good a level of coverage. The replacement cost policy will pay the value of the asset today in today’s dollars when a claim is filed. Yet the actual cash value policy will pay the value of the asset minus depreciation.

Depreciation is the reduction of the value of an item due to factors such as age and use. This often means the asset’s price today is more than what a policy with actual cash value coverage will reimburse.

When you purchase insurance you need to be a smart buyer and not just rely on your insurance agent. Your insurance agent makes a commission when they sell you insurance. Sure, some may have high levels of integrity and always offer what is best for their clients and some may offer what pays them a higher commission. In order to know what to do and what makes the most sense, you need to learn about insurance.

A good starting point would be to get more education. If you would like to learn more about investing and other related topics, just go to www.benjaminzmiller.com If you would like to meet more investors and lenders, you also can go to the free Sunday weekly meeting held on Zoom for Benjamin Z Miller’s Investor Networking Group.

https://www.meetup.com/benjamin-z-millers-investor-networking-group/

I hope that helps and good luck with your investing!

Benjamin Z Miller
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