Homeowners Insurance: Replacement Cost or Actual Cash Value?
They say you don’t know what you’ve got until it’s gone. This simple phrase can sum up the thoughts and disappointment homeowners have after they learn their policy provided only actual cash value coverage.
Insurance is a financial tool that allows you to transfer your risk of potential loss to an insurance company. You will undertake any amount of risk not transferred to an insurance company. As an example, if your homeowner’s insurance policy has a $500 deductible, it means you are carrying $500 of the risk of your home becoming damaged or destroyed. Understanding what is at stake when deciding between Actual Cash Value (ACV) and Replacement Cost Value (RCV) coverage will help you decide which is the best option for you.
Actual Cash Value (ACV) – An insurance policy will only pay what your property is worth in today’s dollars. The payment will be calculated subtracting depreciation factors (age, condition, etc.) from the cost of new replacement. ACV policies are less expensive than replacement cost value policies.
Replacement Cost Value (RCV) – An insurance policy will pay the cost to replace your property with new property without reducing the amount for depreciation. This means you will receive an amount equal to the cost to replace property of the same type, kind, and quality without paying more than you deductible. RCV policies are more expensive than ACV policies.
Let’s imagine you own a home with a 15-year-old roof. The roof is damaged and must be replaced as a result of a passing storm. The cost to replace your roof is $35,000. If your policy provides replacement cost coverage, your insurance policy will pay $35,000 minus your deductible.
However, if your policy pays on an actual cash value basis, your insurance company will base your payment on the roof replacement cost minus any depreciation. If the average life span of a roof in your area is 30 years, you can expect to receive $17,500 minus your deductible.
When choosing whether to purchase ACV or RCV coverage on your insurance policy, consider the potential out-of-pocket cost to you should you need to file a claim compared to the monthly premiums.
Featured Blogs
- Fueling Your Mind with Brain-Boosting Foods
- 5 Simple Ways to Boost Your Immune System (and 1 unusual way)
- Embracing Our Roles: Renewing Our Commitment to Sustainable Living
- Tips for a Stress-Free Tax Season Experience
- Spring fitness ideas
- Inspirational women who make the world a better place
- Creating a Positive Start to Your Day
- Spring Forward: Adjusting Your Routine for Daylight Saving Time
- Gratitude - Key to a Positive Mindset
- Adopting a Holistic Wellness Approach to a Healthier You
- 3 Common Sense Things People Should Know
- Exploring Superfoods: Nutrient-Packed Ingredients for a Healthy Diet
- Unraveling the Mystery of the Extra Day
- Digital Detox: A Healthy You in a Hyperconnected World
- Financial Fitness in 2024: Budgeting and Saving Tips
- Three Joyful Habits for a Healthier You in 2024
- New Year's Resolutions: Staying Committed Year Round
- The Magic of Christmas Traditions
- Staying Healthy During the Winter Months!
- How to be a Time Management Whiz During this Busy Season
- Self-care tips for December
- Five Health “Hacks” For Happy Holidays
- Turning 65? Looking at Medicare?
- Turning 65? What You Need to Know about Signing up for Medicare
- The Smart Home: What is that?
- Important definitions to help you understand your life Insurance
- Why an Insurance Agent Makes a Difference When Buying an Insurance Plan
- Preparing For an Emergency
- Davis Insurance Fresh New Look!
- Why Do I Pay Medicare Part B
- Don’t Let Insurance Coverage Gaps Put You at Financial Risk
- It’s February And That Means It’s American Heart Month
- Starting a New Business? Don’t Forget Your Insurance
- How to Stay on Track with Healthy Goals for 2017
- Insurance and Financial Planning Resolution for 2017!
- Wishing You a Happy Holiday Season
- End of the Year Financial To-Do List
- Modest Increases for 2017 Medicare Parts A & B Premiums and Deductibles
- Open Enrollment For Health Insurance is Here!
- Eat Well, Sleep Enough and Move to Stay Healthy
- Four things to know about Medicare Open Enrollment
- Pick a Plan, then Find The Right Doctor