In these trying times, it can be hard to find an insurance policy that has ‘unlimited’ coverage. This is where insurance policy limits come into play. If you’re familiar with the world of insurance, you may already know of this term. However, many people are unaware of exactly what insurance policy limits are. It can be difficult to realize what your limits are and how you can go about setting up your insurance policy. Luckily, isure has you covered with everything you need to know. This way, you can get the exact coverage you need for all of your possessions without confusion. Let’s discuss.
What are insurance policy limits?
Insurance policy limits are the maximum amount of money your insurance company will pay out to you in the event of damage or a loss. This can also be known as an ‘extended policy limit’. This can be defined in many ways. However, it is generally based off of what is insured and the type of insurance policy you are currently holding. In many cases, upon setting up an insurance policy, you have the option to raise or lower your limits based on your required coverage.
How do I choose my insurance policy limits?
When you are insuring something valuable, such as your home or car, consider the coverage that you believe is necessary. On top of this, consider the level of coverage you are able and willing to pay for. It is crucial to be sure that when deciding on an insurance policy, your valuables are adequately covered. The Insurance Information Institute breaks down coverage for your valuables into three different categories. Each describes the payout you can expect from an insurance claim:
1. Actual Cash Value
Your insurance company will cover the replacement cost of any insured items, minus the depreciated value. An example of this is if your expensive camera gets damaged. Since your policy is based on an actual cash value payout, you will get the amount that the camera is worth today. Contrary to popular belief, you will not receive a payout for the amount you originally purchased the camera for. If your camera is 10-years old, the insurance company will research the camera and give you a similar price. Generally, it is what you’d find if the camera was for sale on eBay or Kijiji. This is because your camera could have been $3,000 when you purchased it, but only worth around $700 today.
2. Replacement Cost
This is when your insurance company will cover you for a replacement of the insured item for another item at equal value. Unlike the ACV policy listed above, your limit here will be the cost of a new item comparable to your old one. In this case, you will be reimbursed for a similar camera up to the extent of whatever your policy limit is. However, if your policy limit is $1,000 and a new camera costs $2,000, you will only receive $1,000. The rest will come out of your own pocket if you decide to replace the camera with a brand new one instead.
3. Guaranteed Replacement Cost
Also known as ‘extended replacement cost’, this is an extension on the Replacement Cost. This means that your policy limit is “guaranteed.” So, the replacement cost will not apply if the cost to replace the camera example above is higher than you have paid for. For example, if that same camera breaks yet again and it costs $3,000 to replace it, your insurance company will pay the whole amount. In the long run, no money will come out of your pocket. This is generally the preferred option for obvious reasons, but can come with a heftier price tag on your premiums.
Final thoughts on insurance policy limits
At the end of the day, choosing the proper insurance policy limits that are right for you and your valuables is crucial. It can be a difficult process to figure out what is necessary when it comes to insuring your items. On top of this, it can be tough to figure out what you can and cannot afford. This is where connecting with isure will help you! We take our time to carefully help you figure out the insurance coverage that is right for you.