Replacement Cost versus Actual Cash Value

Image: Some rights reserved by pknitty86We all know it’s unfortunate when the insurance company totals out your car and gives you less than you think you deserve. It’s especially unfortunate when you can’t afford a similar replacement car. That’s a horror story you hear all the time. No one wants to fall victim to that.

An even bigger horror story occurs when it’s your biggest investment – your home. Have you thought what happens with your home insurance and a loss? Now is a good time to think about it, especially since it is hurricane season!

Many policies come with replacement cost for your home. The policy, and quote, should detail how the home will be valued when it becomes damaged. Is it actual cash value or replacement cost up to dwelling coverage amount? Meaning, will they provide you with what the home is worth minus depreciation (ACV) or what it will cost to replace the home with a like value replacement (RCV)?  Make sure that you know the answer. It can amount to a big difference in the money you receive after a loss.

Also, make sure you feel your dwelling coverage is accurate for your home. If you have replaced your flooring with tile instead of vinyl, this alone could change the replacement cost for your home. In addition, the dwelling coverage on your home is related to the replacement cost of your home. It’s always a good idea to do a home insurance checkup to make sure you feel your homeowner’s policy is adequate for your home’s current value.

Now, there are situations when you might be ok with an actual cash value valuation on your home. If it’s your primary home, you might need replacement cost more than you do for a home you rent to others. However, this isn’t always the case–make sure you carefully evaluate the type of homeowner’s policy you need for your circumstances and financial situation. It’s one of those times when you need to evaluate what you feel comfortable with, and the possible financial risk involved. You don’t want to file a claim and then find out you were under insured or didn’t have the coverage you thought you did. Then it’s a little too late, isn’t it?

Another consideration is whether you should have wind insurance on your home. Wind coverage is coverage for damage to your home in case of hurricane or other type of windstorm. Many homeowner’s policies automatically include wind coverage unless you exclude this coverage, but some companies write policies automatically with no wind coverage, requiring you to secure it elsewhere. If you exclude this valuable coverage you may be able to save lots of money, but you would also be without coverage that is of special importance in Florida. Make sure you consider this decision carefully. Often you are not able to add wind coverage mid- term in your policy period.

Having a loan is, of course, an influence on what type of coverage you will need for your home. In addition, consider the type of the home and its condition.  You’ll want to compare costs for the various types of policies that are available for your type of home.

If you have to change coverages, consider raising your deductible. A quote on this change alone could be helpful and not require you to exclude a coverage all together.

Attorney Christopher D. Smith, Sr. is designated a Board Certified Consumer Bankruptcy Lawyer by the American Board of Certification.  SmithLaw is located in Lakewood Ranch, Florida.  Attorney Smith concentrates on bankruptcy, civil litigation, probate, estate planning, and elder exploitation cases in the Sarasota and Bradenton area.  Call 941-202-2222 to learn more.  SmithLaw offers free consultations in certain areas, including consumer bankruptcy, probate, and personal injury matters.

Image: Some rights reserved by pknitty86

Comments are closed.