Your personal property is insured at either its actual cash value (ACV) or replacement cost value (RCV), depending on what your insurer offers. In the event of a covered loss, ACV pays out the current value of your items after taking depreciation and your deductible into account. RCV, on the other hand, pays out what it would cost to replace the item with a new version today, minus the deductible. Some policies automatically cover personal property at actual cash value, but others require the homeowner to purchase an RCV endorsement. If an insurer offers RCV and ACV policies, an RCV policy will likely result in a higher premium.
For example, suppose your living room furniture cost $6,000 five years ago when you bought it. If it depreciated 7 percent a year, today's current value is about $3,900, a depreciation of $2,100. However, to replace it with a similar living room set costs about $7,000. If you have a $1,000 policy deductible, here is how the two options would play out if that furniture were destroyed in a covered loss:
- ACV: $7,000 (replacement cost) - $2,100 (depreciation) = $4,900 (actual cash value) - $1,000 (deductible) = $3,900 (claim payout)
- RCV: $7,000 (cost new of similar furniture) - $1,000 (deductible) = $6,000 (claim payout)
Step 2: Get quotes from several home insurance companies
Once you know what you are looking for in a company, experts recommend requesting quotes from several home insurance providers that might fit your needs. You can collect quotes a few different ways:
- Get a home insurance quote online: Online home insurance quotes are a great place to begin. Some carriers may allow you to purchase your policy entirely online, while others will put you in contact with an agent to complete the process. Getting a handful of quotes online can help give you a better estimate of what your home insurance policy will cost.
- Use a captive insurance agent: A captive agent works for one insurance provider. As such, working with a captive agent is typically best if you’ve already chosen a company but need help building or finalizing your policy.
- Go through an independent agent or broker: If you prefer personalized service and want help gathering quotes, then working with an broker could be the best choice. Unlike captive agents, independent agents can provide you with home insurance quotes from multiple companies. Independent agents and brokers typically earn a commission from your policy, so be mindful of upselling.
- Use a home insurance calculator: While it’s not an exact quote, entering your info into a home insurance calculator can give you a clearer picture of what to budget for your policy.
Experts recommend collecting between three and five home insurance quotes to better gauge what your policy will really cost.
Step 3: Review each home insurance quote for accuracy
Once you have your quotes on hand, it’s time to scan them for accuracy. Review the documentation you receive and ensure that each home insurance quote is in line with the information you provided. Your coverage amounts may vary based on each insurance company’s valuation tool, but as long as your quotes are in the same ballpark, you should be able to compare them.
Aside from coverage amounts, you will also want to take a close look at the deductible, the policy type and whether your belongings are insured on an actual cash value or replacement cost value basis. These may seem like minor details but can have a major impact on what you wind up paying for your policy.
If your mortgage company is listed on your home insurance policy, be sure to review that information, as well. Your home insurance company should have an up-to-date mailing address for your mortgage lender for bills, renewal notices and other important policy documents.
Step 4: Choose your home insurance policy
Your budget is an important consideration when searching for the perfect home insurance policy. However, it is not the only thing to think about. Hopefully, you never need to file a home insurance claim, but if disaster strikes, you’ll want to know that your insurance company will be there for you when you need it. As such, experts recommend choosing a company that has a strong financial history, high rates of customer satisfaction and robust coverage offerings.
Example of how to compare homeowners insurance quotes
Choosing the right homeowners insurance means looking beyond just premium costs. While two policies might seem similar at first, differences in coverage levels and deductibles can impact both your monthly payments and your protection level.
The table below provides a hypothetical comparison of quotes from three companies (Company A, Company B and Company C). These examples illustrate how varying coverage limits and deductible amounts influence the yearly premium.
Shopping for home insurance isn't as simple as comparing price tags. Dwelling coverage, liability protection and deductibles all play their own important role in determining your annual premium.
Take a closer look at how these elements interact: Company C might seem like it should be pricier at first glance with its robust dwelling and liability coverage, but the policy balances this with a higher deductible to keep premiums reasonable. Company B offers lower liability limits compared to Company A, but the policy’s reduced deductible could be attractive if minimizing immediate out-of-pocket expenses after a claim is a priority.
There isn’t a right or wrong answer as to which quote is better. The quote you choose will depend on your needs, budget and risk tolerance. You may want to work with a licensed agent if you have any questions or require specialty coverage.
What comparison shopping really boils down to is the importance of considering the full picture. Rather than fixating on simple cost or individual policy features, it's important to evaluate how all these components work together. This more holistic approach helps ensure you're not just getting good coverage on paper, but rather coverage that aligns with both your needs and financial constraints.