Replacement vs. Cash Value: What Physicians Need to Know About High-Value Item Insurance

Homeowners (as well as renters or condo) insurance is critical in protecting your home, property, and personal belongings in the event of a catastrophic event, such as a fire or severe storm. As important as homeowners insurance is, however, your policy might not be enough to cover your most valuable possessions. For example, your homeowners insurance policy could have a $1,000 coverage limit on a piece of jewelry that’s actually worth $2,000. If it were stolen, your policy would pay out the limit amount ($1,000) rather than the jewelry’s actual value ($2,000).

Fortunately, extra protection exists for such circumstances in the form of high-value item insurance. This additional coverage can help ensure that you receive closer to what your most treasured items are worth if they were ever stolen or destroyed.

Keep reading to learn more about what high-value item insurance is, how it works, and which type of coverage (actual cash value or replacement cost) works best for you.

What Is High-Value Item Insurance?

High-value item insurance is coverage for your more expensive personal property. Jewelry, electronics, firearms, rare art, furs, watches, and coin and stamp collections are the types of items for which you’d want high-value item insurance. Your homeowners insurance policy protects these items but only up to a certain point. A high-value, or valuable personal property, insurance policy extends beyond what homeowners insurance covers. You also have the option to tailor the coverage to protect particular items.

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Replacement Cost and Actual Cash Value Coverage

In the event any of your belongings covered under your high-value item insurance policy are stolen or destroyed, you’d file a claim just as you would for any other insured loss. How your insurer reimburses you will depend on the type of coverage you have—replacement cost value or actual cash value. Both coverages will help pay to replace your belongings but at different value levels.

Replacement Cost Value

Replacement cost value measures how much it would cost to replace your stolen or damaged property. Depreciation does not factor into the calculation with this coverage. Your insurer will likely reimburse you for your item’s current value, minus your deductible, so you can replace it. For example, if your 3-year-old television that you paid $1,000 for was stolen, your replacement cost value coverage would reimburse you what it cost to buy a similar model—even if that same TV cost $1,400 today.

Actual Cash Value

Meanwhile, actual cash value reimbursements are based on how much your stolen or damaged item costs, minus depreciation. If that previously mentioned TV was stolen and you have actual cash value coverage, you’re likely not going to get enough of a payout to replace it with a similar model. Your insurer will determine the item’s value based on its age and wear and tear and pay you based on its depreciated value.

Is Replacement Cost Value or Actual Cash Value Coverage Better?

Since replacement cost value coverage typically offers a bigger payout for stolen or destroyed items, it might seem safe to assume that it’s a better option than actual cash value. “Better” really comes down to an individual’s personal coverage needs and budget, however.

Pros and Cons of Replacement Cost Value

Replacement cost value coverage is great because your high-value items can be replaced with today’s prices in mind. No matter how much your furniture, laptop, or TV might have depreciated over the years, your replacement value protection ensures you can buy brand new versions of those items without going into your own pocket.

The benefit of full reimbursement usually comes with a higher premium, however. Additionally, replacement cost value payouts come in two checks. The initial check will cover your stolen or damaged property’s actual cash value. Once you’ve spent those funds to buy your brand-new replacement item, you can submit a receipt to your insurer, and it will send a second check that will make up the difference. It’s not the biggest inconvenience, but it’s good to know ahead of time that you won’t receive full reimbursement immediately.

Pros and Cons of Actual Cash Value

The downside of actual cash value is well-established—you’re looking at a lower payout for your high-cost belongings that were stolen or damaged by a covered loss. That’s because your insurance company accounts for the age of the item in question and its condition. Your insurer will pay you for what it calculates your valuables are worth now vs. what it would cost to replace them with new versions.

All is not lost with actual cash value coverage, however. There are some benefits. First, you’ll pay a lower premium than you would with a replacement cost value policy. Plus, the fact that actual cash value coverage pays out based on current value could work in your favor depending on what you’re insuring. For example, items that increase in value over time could yield a higher payout if they were damaged or stolen. Property—such as art, rare coins, and stamp collections—that appreciates over the years would fall under this category.

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How to Decide Between Replacement Cost Value or Actual Cash Value

Adding high-value item insurance is an easy decision if you have valuables that you know a homeowners (or renters or condo) insurance policy won’t cover on its own. You may find it less easy to decide between replacement cost value or actual cash value as a coverage option, however. In that case, consider the math. Replacement cost value coverage will be more expensive in terms of premiums, but you would not have to pay out of pocket to replace lost items due to theft or damage.

On the other hand, actual cash value coverage would cost you less in premiums, but if the time came to purchase replacements, your insurance payout likely would not pay for everything. So the money saved on your insurance premium might end up going toward buying new goods since your insurer is only paying out based on the current value. The question you have to ask is this. Would you rather pay more now over the course of your policy or later if you suffer a major property loss?

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The White Coat Investor may receive compensation from White Coat Insurance Services, LLC; licensed in all states including MA and DC; CA license #6009217; NY license #1758759 (exp. 6/2025); Registered address: 10610 S. Jordan Gateway, #200 South Jordan, UT 84095. This does not affect the cost or coverage of insurance.