Actual Value is the replacement cost of an item minus depreciation. As an illustration, let's say a fire damages your five-year-old stereo. Your carrier may determine that the stereo has depreciated 50% during the five years since you bought it. Today, a comparable new stereo costs $200. The insurance company would pay you 50% of $200, which equates to $100 for your damaged stereo.

Replacement Value is the cost to replace the item with no deduction for depreciation. Let's consider the example of the stereo damaged by fire. Even though the stereo was purchased five years ago for $250, due to advances in technology and a decrease in the price of the stereo, the exact same stereo can be purchased today for $200. The insurance company would pay you $200 and you could buy a brand new stereo.

Replacement Value is the cost of a comparable unit - feature for feature - purchased today. Find out whether your insurance company will pay you Actual or Replacement Value for your possessions at the time of a claim. If your carrier calculates losses based on Actual Value and you would prefer Replacement Value, you can upgrade your policy to provide this level of coverage. Yes, your premium will increase for this coverage if you add it to your policy. For more recommendations, see the Insurance Information Institute articleHow Much Homeowners Insurance Do I Need?

Your homeowner's insurance is intended to cover general possessions. Due to the variability among the general public and the value of their possessions, the insurance industry has established a group of limits that are applied to objects that might be considered luxuries. Valuable collections, jewelry, antiques, artwork, and other such unique items are provided only limited coverage in the standard policy. These limits, called Set Limits or Special Limits, depending on the carrier, include:

• $200 for money, bank notes, gold, and silver (other than goldware and silverware), platinum, coins, and medals.
• $1,000 on securities, accounts, deeds, evidences of debt, letters of credit, notes (other than bank notes), manuscripts, passports, tickets, and stamps.
• $1,000 on watercraft, including their trailers, furnishings, equipment, and outboard motors.
• $1,000 on trailers not used for watercraft.
• $1,000 for loss by theft of jewelry, watches, furs, and precious and semiprecious stones.
• $2,000 for loss by theft of firearms.
• $2,500 for loss by theft of silverware, silver-plated ware, goldware, gold-plated ware, and pewter ware.
• $2,500 on property on the resident premises used for business.
• $250 on property used for business that is damaged or lost while in use away from the premises.

The limits that are predetermined by the insurance carrier are not intended to cover the full amount of a very expensive ring or a sterling silver tea service. People who need to insure costly valuables pay a higher premium specifically to cover those items. Without Set Limits, we would all bear the financial burden of higher premiums to share the added expense of these precious items. Set Limits prevent you from having to pay a higher premium for someone else's original Picasso and expensive family heirlooms. However, if you own a valuable antique, you can increase your own coverage to protect that possession. You only buy the insurance you need.

Check with your insurance company to verify the limits that apply to your coverage and keep a complete inventory of your personal belongings to be sure your coverage is adequate. The Insurance Information Institute offers free, downloadableKnow Your Stuff software to help you make a home inventory.

If you own a piece of jewelry that is worth more than the Set Limit for jewelry on your policy, you can purchase additional coverage specifically for that item. This separate coverage is often called a personal property endorsement or a rider. If you purchase a rider for your jewelry or any other item of personal property, you must be able to verify the cost and the condition of the item, typically by having the item appraised. Photographs and video of these items are also useful if you ever need to make a claim.

Take a careful look at your possessions, particularly those that are subject to insurance limitations, and make sure you have the coverage you need for your unique circumstances. If not, check with your insurance professional to be sure your insurance needs are being met.

This article is one in a series on homeowner's insurance. For more information on other facets on insuring your home, see the related articles listed in our Knowledge Center Library.

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