Whether you’re insuring a car, a boat, business equipment, or any other type of property, it’s vital that you understand the type of valuation that’s used in your policy. In this blog post, we will explain the four most common methods of valuation used.

Actual Cash Value is a common valuation method used in many insurance policies. It is calculated by subtracting depreciation from the replacement cost. For example, if a fire destroys your five-year-old dining room set, your policy will pay the cost to replace the set with like kind and quality less five years of depreciation. Insuring your property using actual cash value will provide a lower premium but in the event of a claim, it will not pay enough for you to replace your property.

Replacement Cost is another common valuation method used in many insurance policies. The coverage provided is the price that it would cost to replace an existing asset with a similar asset at the current market price. Depreciation is not deducted. In our example above, the claim settlement for your five-year-old dining room set that was destroyed by fire will be enough to replace the set with a similar one. Premiums for replacement cost coverage are higher than premiums for actual cash value.

Agreed Value is a type of coverage where you and your insurance company agree upon the value of your property when you take out the policy. In the event of a loss under an agreed value policy, you’ll be reimbursed the lessor of the repair cost or the agreed value of the property, regardless of any depreciation.

Stated Amount coverage is a little more complex as there is a capped amount that will be paid based on the price of repairs, actual cash value at the time of loss, or the agreed-upon stated amount. The benefit of a stated amount car insurance policy is that it is a way to lower your premiums and give you all the protection you can afford.

At the Bay Harbour Insurance Agency, we’re happy to answer any questions you may have regarding your insurance coverage.

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We provide commercial and personal insurance coverage in Patchogue and all of New York state.