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Personal Property Replacement Cost: Know Your Numbers

I love reading, and over the years I have accumulated a pretty good sized library. I recently discovered a software program called Delicious Library (currently available for Mac and iOS) that serves as a virtual database of your physical library. Using the program, you can sort and search books by title, author, genre, publisher, or publication date. You can also use the program to create "to read" lists, or to keep track of the books you have loaned out to other people.

The feature I like the most about Delicious Library is that it connects with Amazon.com to provide up-to-date pricing information on my books on a "NEW" or "USED" basis. For example, the program tells me that to replace my library of 200 books (mostly non fiction and business), it would cost $4,030. That's an average of about $20.15 per book. If I were to replace my collection at a USED value, it would only cost $630.56, which is about $3.15 per book.

But what does all this have to do with insurance?

Your homeowners insurance policy gives you the option to insure your personal possessions on a Replacement Cost basis or an Actual Cash Value basis. Replacement Cost is what you would pay for the item at today's cost, while Actual Cash Value is what you would pay for a similar item at today's cost MINUS DEPRECIATION.

This means that while my library may contain a "wealth of information", the truth is that it is only worth a fraction of what I paid for it. The Replacement Cost option will insure my library, as well as my other property, at today's cost as though they were NEW. The Actual Cash Value option will only insure the items for their depreciated value. As the numbers show, there can be a big difference between the two!

The typical homeowners insurance policy will insure personal possessions at Actual Cash Value. To change the policy to Replacement Cost, you will need to add the "Personal Property Replacement Cost" endorsement to your policy. Doing so typically only costs about 10% more, although that may vary depending on the personal property value and the insurance company.

If you have any questions on Replacement Cost, or if you would like me to review your policy to make sure you have it, please feel free to contact me!

PLEASE NOTE: The examples, definitions, and figures provided are for general and informative purposes only. It is not a reflection of contractual language. There may be several ways in which your insurance company defines "Replacement Cost" and "Actual Cash Value". Be sure to review your policy or contact us with any specific questions or claims scenarios!


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