How are personal property losses typically settled under HO coverage?

Under Homeowners (HO) insurance coverage, personal property losses are typically settled on an actual cash value (ACV) basis. This means that the insurer will assess the value of the lost or damaged personal property by considering the replacement cost and then subtracting depreciation. Depreciation accounts for age, wear and tear, and obsolescence, leading to a payout that reflects the current market value of the property rather than its original purchase price.

Settling losses this way is standard for many homeowners' policies because it aligns with the principle of indemnity, ensuring that the insured is compensated fairly without profiting from the loss.

In contrast, full replacement cost coverage would provide the amount necessary to replace the property without considering depreciation, which is not typical for personal property under HO policies unless specifically endorsed. A functional replacement cost approach is used for certain types of property, which emphasizes using less expensive materials or methods to replace the property without necessarily restoring it to its original condition. Not providing any payment to the insured does not align with the purpose of insurance to protect against financial loss.