How does the insurance company determine value of stolen property?

UPDATED: Jun 6, 2011

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UPDATED: Jun 6, 2011Fact Checked

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Asked June 6, 2011

1 Answer

Insurance companies offer two primary choices for the valuation of property: Actual Cash Value and Replacement Cost. Replacement Cost means that your stolen property will be replaced with an item of the same type and quality, and Actual Cost Value means that you will paid an amount equal to the original cost of the item minus a depreciation amount based on the age and wear of the item.

Replacement Cost coverage is slightly more expensive than Actual Cost Value, as it will replace the item with a new version where Actual Cost Value only pays a depreciated amount. What is important about that is that the depreciation is a special formula used for insurance calculations, not book, or Accountant, value. Insurance cannot use book value because the claim payout is based, not on the original value but on the current value with the depreciation formula applied, resulting in a higher overall claim value regardless of the age or wear on the item.

As an example, consider a riding lawnmower that is stolen. Even though the mower is kept in a shed rather than the home, it is covered under your home insurance policy as personal property. With Replacement Cost coverage, the mower would be replaced with a like model at the current manufacturer's price. With Actual Cost Value the amount of the claim value decreases according to the age of the machine and the estimated wear on the mower. A 3 year old riding mower used to cut an average home lot loses a majority of it's resale value over that period of time, and the resulting claim would only be for a fraction of what it will cost you to replace the mower with a similar one.

Answered June 6, 2011 by Anonymous

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