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Replacement Costs vs. Actual Cash Value

The first thing you must understand before purchasing mobile home insurance is the difference between “replacement cost” and “actual cash value”. Replacement costs represent the sum of money you would need to replace, rebuild, or repair damages using materials of similar quality and kind without deducting for depreciation up to the limits of your policy. On the other hand, actual cash value refers to the value of your property once it is destroyed or damaged.

Nearly, all mobile home policies are written on Actual Cash Value (ACV) basis, which means that the depreciation of your mobile home and its contents is taken into consideration in the event of a loss. The ACV is generally figured by subtracting depreciation from the replacement cost. For example, a chair that costs 500 dollars to replace may have a reasonable “life” of 20 years. If the chair is destroyed after 10 years, its actual cash value will be much less than 500 dollars, most likely about 250 dollars. The condition of your chair would also affect your insurance payment.

At this time, there are insurance companies that are writing replacement cost policies on mobile homes and its contents. Thus, you need to check with your agent to see if this coverage is available.

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