For loss settlement purposes, how do most homeowners policies pay for damages?

Most homeowners policies pay for damages to personal property at actual cash value and damages to structures at replacement cost. This means that when a structure is damaged, the insurer will cover the cost to repair or replace it with a similar structure without considering depreciation, thus providing the homeowner with a more substantial financial recovery. Conversely, when it comes to personal property, the insurer will account for depreciation, meaning that the payout reflects the current market value of the item rather than its replacement cost.

This approach allows for a fair settlement process that recognizes the homeowner's need to replace important structural elements of their home without financial loss while also balancing the payout for personal property to account for wear and tear. Understanding this distinction is crucial for homeowners when selecting coverage options and assessing how claims may be settled in the event of a loss.