I’d like to understand better when it comes to replacing personal property that was damaged, what an insurance company owes their customer? For example, I understand that if a 5 year old couch is damaged, they would likely give you the depreciated value of the couch upfront and if you replace the couch, the difference in the price to replace it.
Now, let’s take a collectible. Let’s say the collectible cost 20 years ago $50. But let’s pretend its worth $500 as its no longer available. Should we expect the insurance company to cover back up to the original cost, or the value lost?
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Market value. Van Gogh paintings were essentially worthless during his day. Now they’re worth millions.
Insurance is based on the value of the property at the tome of its loss.
Depreciation and appreciation are literally the opposite sides of the same coin. You can’t regogniz) recognize one phenomenon without including the other.
It’s usually for the current value of the lost item. My wife and I just went through this when my idiot upstairs neighbor lit his apartment on fire and totaled most of our belongings. It can get kinda weird when it comes to certain items, and certain insurance products though. For example if you have a replacement cost policy and you have to make a claim that includes a tv that is five years old but originally cost $1500, they will give you up to $1500 to buy a new tv, even though a new $1500 tv is a much bigger/nicer tv than it would have been five years ago. The other place it got weird for us was items that we had done work on, we bought a solid oak dining room table from goodwill for 10 bucks and refinished it ourselves prior to the fire, turns out a “custom refinished solid oak dining table” is like $800 to replace
Insurance agent here. Your insurance policy will be quite specific on what formula is used. It’ll say either “replacement cost” or “actual cash value”.
Instead of talking about a couch, let’s talk about 20 year old roof.
If you have a “replacement cost” policy, they’d pay to replace it with a new roof. So the replacement cost number would be pretty damn high.
But if you bought an “actual cash value” policy, well your 20 year old roof was near the end of its life anyway and has depreciated a lot since it was installed. So the actual cash value is… not much; maybe only 30% of the cost of a new roof.
Now, let’s say you had just bought a brand new house and a tree fell over on the roof. The replacement cost and actual cash value would be identical because the roof hasn’t depreciated yet.
Going back to your collectibles example, assuming your policy actually covers collectibles, it would pay the market value e.g the cost of replacing the item (minus your deductible, of course).
Last thought: a core principle of insurance is that nobody should ever make a profit from an insurance claim. If somebody had something worth $1,000 to them but knew the policy would pay out $1,500, they’d be incentivized to let something bad happen. That’s called “moral hazard”. So the payouts on insurance policies are set up to encourage everybody to do the right thing: lock your doors and check under the sink for leaks occasionally.
It depends whether your coverage is rated on “Actual Cash Value” or “Replacement Cost”.
If it’s ACV they will factor in depreciation. (If any) whereas if it’s RC you will be made whole again and fully compensated for the cost to you. (This is usually a stated value agreed upon at the beginning of the policy term.)
[this website may provide more details.](https://www.eqgroup.com/acv_explained/)
Edit: if it’s a collectible then hopefully your agent rated it as RC.
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