Depreciation House Insurance | Auto Insurance Quote

Many people are probably familiar with the concept of deprecation in relation to taxes. They may not realize that depreciation can also affect the amount that they are paid on house insurance claims. The concept of depreciation is a fairly simple one, the value of most possessions decreases over time. A good example of depreciation is the difference between new and used cars. Used cars cost less because they have depreciated in value.

Depreciation and House Insurance

Depreciation can affect house insurance claims because many house insurance policies will pay the cash value for the replacement of possessions. If your house insurance policy states that it will pay cash value to replace goods that have been lost or destroyed – the amount paid out will be based on depreciation. That means that you will receive less for items such as appliances or electronics. If your four-year-old computer was destroyed in a fire, the amount you would receive would equal the value of a four-year-old computer and would not provide enough money to purchase a new computer.

This means that you should check your house insurance policy and see whether it covers replacement cost or cash value. Most homeowners should purchase insurance to cover the replacement cost rather than the cash value because of depreciation.

Replacement Cost vs. Cash Value

Replacement cost is a much better deal for most homeowners than cash value. A replacement cost policy will pay the full price of replacing items lost in an emergency rather than the depreciated cash value.

This means that a person who lost their five-year-old refrigerator in a fire would get enough money to buy a comparable new refrigerator. Most families need replacement cost coverage so they can replace items like appliances after an emergency.

Persons who use their computer to work at home should definitely have replacement cost insurance. Such a policy would cover the cost of a new computer, while a cash value policy might not.

Items that Do Not Depreciate Many house insurance policies specifically exclude items that do not depreciate from coverage. Such items can include jewelry and collectibles such as stamps, coins, baseball cards, comic books, antiques, and certain kinds of vehicles. The value of such items is determined by the market rather than depreciation, so they can only be insured with cash value coverage.

It would be more advantageous for a person to insure such items with special coverage that covers the cash value of the items. This special coverage can usually be added to your house insurance policy in the form of a rider.

Dollar Amount of Coverage

The dollar amount of coverage refers to the maximum amount of money that can be paid out on a house insurance policy, and should be clearly stated in any house insurance quote. Dollar amount of coverage is a very important term because it determines how much the policy will cost and how much coverage you will obtain. Generally, most insurance policies will let you determine the dollar amount of coverage you get and the premium you pay.

Not surprisingly you will have to pay a higher premium if you want a higher dollar amount of coverage. If you pay a lower premium, you will generally receive a lower amount of coverage.

How to Determine the Dollar Amount of Coverage

The dollar amount of coverage should be the maximum amount of money that you might need in an emergency situation. For a single person renting an apartment, this should be enough to replace all of her possessions and rent another apartment if her current home is destroyed. Something that you should always figure into renters’ insurance is the cost of renting another home in your area. This should include the cost of first and last month’s rent and deposits.

A homeowner will need to have a dollar amount of coverage that will pay for the cost of replacing the house if it is destroyed. In most cases, this amount of insurance will be required by the homeowner’s mortgage.

Dollar Amount of Coverage and Liability

The dollar amount of coverage and the liability are often two different amounts. Many renters’ policies will actually give renters liability coverage that greatly exceeds the dollar amount of coverage. The reason for this is that a person is much more likely to use the dollar amount of coverage than the liability.

Factors that Affect the Dollar Amount of Coverage

Special coverage is often required for certain kinds of possessions in order to keep the dollar amount of coverage low. Most broad and basic house insurance policies will not cover jewelry, vehicles, collectibles, antiques, and other valuables in order to keep the dollar amount of coverage low.

Damage caused by natural disasters that are more likely to occur in specific areas is often excluded from the dollar amount of coverage in order to keep premiums lower. This almost always includes flood damage and may include earthquake damage.

Always Learn the Dollar Amount of Coverage

You should always check to see what the dollar amount of coverage is when you get a house insurance policy. Make sure the dollar amount of coverage offered will meet your needs.

This means that the dollar amount of coverage should be enough to meet your needs in the worst case scenario which usually means the destruction of your home.

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