However, certain conditions must be met in order to receive compensation without depreciation being taken into account. For example, the item must absolutely be replaced or the house must be rebuilt on the same piece of land.
If you decide not to replace destroyed or stolen property, you’ll receive compensation equal to the value of the property at the time of loss, minus an amount for depreciation.
It’s also important to note that the loss of some belongings, such as antiques, cannot be settled at replacement cost. Depending on the value of a belonging, it may be wise to have it insured for an agreed value, which is a predetermined amount.
Examples of compensation
Example of a settlement based on replacement cost
| Amount paid for a refrigerator purchased 10 years ago |
$800 |
| Current price of a refrigerator with the same features |
$1,000 |
| Compensation |
$1,000 |
Example of compensation based on actual cash value
| Amount paid for a refrigerator purchased 10 years ago |
$800 |
| Current price of a refrigerator with the same features |
$1,000 |
| Depreciation ($40 a year for 10 years) |
$400 |
| Compensation ($1,000 - $400) |
$600 |