Replacement Cost vs. Actual Cash Value
Now is a good time to take your homeowner's insurance policy to your local insurance agent to review the types of coverage that you have. Ask your insurance agent whether or not your policy recovers the cost of "replacing" your possessions or provides "actual cash value." Most people prefer "replacement cost" coverage because it pays more than "actual cash value." Simply put, "replacement cost" compensates you for the actual cost of replacing the damaged or stolen property. "Actual cash value" is determined by taking the replacement cost minus any depreciation. Basically, "actual cash value" is the value of the item if you sold it in the marketplace. I'll use a "stolen t.v." as a simple example of the difference between the two types of coverage: under "replacement cost" the insurance carrier will likely ask you to go price a replacement t.v. of like kind (and pay you that amount)--under "actual cash value" the insurance carrier will take the replacement cost (the price of a new t.v.) less depreciation (i.e. wear and tear on the t.v.).
Ultimately, If you have to pay an added premium to get replacement cost—ask your local agent if that option is available—and pay the extra money if you can afford it.