Are there many different kinds of personal coverage policies?
A. There are two basic kinds of coverage for contents–replacement cost and actual cash value. Replacement cost coverage pays for the damaged item to be replaced with a new item of similar quality. Actual cash value coverage, which is less expensive to buy, pays an amount equal to the replacement cost, less depreciation. So if a 20-year-old washing machine is damaged and you have replacement coverage, the insurance company would pay for a new washing machine. If you have an actual cash value policy, the insurance company would pay only a small portion of the cost of buying a new machine, because that machine has already been used for 20 years and would only be worth a fraction of its original cost. Replacement cost policies usually have higher limits for personal possessions than actual cash value policies because the cost of replacing all the damaged items is higher. Q.
