I have had several people ask me a very important question. What is actual cash value? The funny part is that no one really knows for sure. It is not defined in your insurance policy. See, the auto policy will pay either the cost of repairs or the actual cash value, whichever is less. For your homeowners policy, the policy will pay actual cash value for personal property. But, the insurance company does not tell you what that is.
These are actually two separate but similar issues. For your auto policy, the actual cash value of your vehicle is what the car is selling for used. Read here for how to do that. That is pretty simple, right?
But what about your personal property? Face it, no one is selling men’s small pajamas with feet on them used. And if they are, no one better be buying them. In this case, actual cash value usually becomes the cost to replace the item less depreciation. And this is where the trick comes in.
Some adjusters want to add up the value of everything you had damaged and take depreciation on the entire amount. So, if you had 3 suits and 2 sneakers and 1 television, they would add up the cost to replace these items and take 20% depreciation on the whole thing, for example. And this is………….WRONG!
Actual cash value requires the adjuster to take the depreciation on EACH item. Yes, that makes more work for the adjuster. However, that is the correct way to calculate it. So the suits would have depreciation taken, then the sneakers and then the television. And if the suits are of different quality (one was bought at Target and one at Nordstrom) they would have different depreciation rates applied to them.
When you have a loss, make sure the adjuster is calculating actual cash value correctly. And if you have a question on it, ask.