Many homeowners struggle with these two options when taking out policies for home and contents. Actual cash value, which is standard on many insurers' policies, is a less expensive option than replacement cost. It will pay you what your home or contents are currently worth—the calculated value after depreciation is deducted from the original cost. If your belongings have been around for several years and you are hit by fire or another covered event, the cheque you get from the insurance company will be for the amount of what your current belongings were worth prior to the event. This amount may not be enough to replace your damaged goods with new ones. If it is the home that must be repaired, you may end up paying much of the cost out of your pocket.
If you choose the replacement cost option, your insurance company will pay whatever it costs to buy a new item to replace the old one you lost. You can take out full replacement, which pays the entire cost of replacing items. Or you can take out a set dollar amount, which may leave you to pay some of the replacement costs when you hit the limit on your policy.
If you carry a mortgage on your home, the mortgage company may not give you a choice on
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