How do you determine value? For example, an old refrigerator just gets noisier and noisier. Now if there's an electrical fire, will the insurance company pay for the cost of a new one? Or will they pay what the old clunker was worth at the time of loss?

The standard recovery is Actual Cash Value or ACV. The law defines ACV in several ways. One ACV is current fair market value; another is replacement cost less depreciation. An insurance policy may qualify ACV giving the insurer the contractual right to replace or repair an item if this is economical.

Let's say the refrigerator was only a year old when the fire occurred. The actual cash value of the used refrigerator is much less than a brand new one will cost. The loss payment is less than the cost of a new fridge. You've been let down by the insurance process. Policy options to the rescue!

You can save yourself this problem if you buy replacement cost coverage on personal and real property. This is known as "new for old." Of course there are controls on a loss recovery. This is designed to make it fair to you and the insurance company. Another tool for a fair recovery is inflation protection. This offers an automatic rise in insured property values so inflation won't mean low recovery at the time of a loss.

Valued Policy, Valued Policy Law, Agreed Value Policy and similar names indicate policies with a special settlement provision. These policies have set amounts you must pay at the time of a total loss. Most common are collector vehicle policies. The amount to be paid for vehicle theft or destruction is set in the Declarations. In other words, this is a pre-adjusted loss.

Tip. Don't rely on the terminology for these insurance policies! It is seriously misused. Know your policy. Ask questions about things you don't understand. Your agent is there to give you answers.

Some states have value laws. These require the insured value to be paid in a total loss. These laws stop insurance agents and companies from selling high dollar coverage that would never be paid under an ACV policy.

Tip. Review your insured property values each year. Values change.