Have you ever heard of the phrase “the devil is in the details”? When it comes to any type of insurance, the details can make a big difference in how you’re covered, what is covered, and how much you would be reimbursed if you ever needed to file a claim. That’s not even taking into account the differences in costs from policy to policy, and company to company.
With all the comparisons, one thing that shouldn’t be overlooked is how your reimbursement would be calculated if you file a claim. When you’re shopping for a homeowners’ insurance policy, it’s important to know if the insurance company will be using actual cash value (ACV) or the replacement cost value (RCV) to determine how much they would pay you should you have a loss. Read on to learn about the differences.
Replacement Cost Value (RCV) vs. Actual Cash Value (ACV)
Actual Cash Value policies base all reimbursement amounts on the present-day value of the item including depreciation, regardless of what state it was in at the time it was damaged. That means you probably won’t be able to replace the loss without paying a little extra out of your pocket. If it was your TV that got zapped by lightning, you might not have to spend too much to replace it, but if you have a fire and multiple items were damaged, the different between what your insurance will pay and what is required to replace everything could add up.
Replacement Cost Value policies base all reimbursement amounts on the cost to replace the item you lost with a comparable new item, regardless of how old your original item was. That means you probably won’t have to pay much more than your deductible to replace anything that was lost in your claim. For example, say a storm sent a tree limb through your window and smashed your television. Not only would the window be covered for the full replacement value, but so would your television. Even if your TV was an older tube-type, your insurance company would pay you enough to by a similarly sized flatscreen TV. Monthly premiums for RCV policies are higher than ACV policies, but you do get to sleep easy knowing that if anything happens to your stuff, you won’t be on the hook for having to foot a large percentage of the bill.
RCV, ACV and Mixed Policies
Most un-endorsed insurance policies are ACV. If you find that you have an actual cash value policy, your insurance provider most-likely has the option to “upgrade” to a replacement cost value policy for a small price. At Smith Insurance and Financial Services, we strongly recommend replacement cost coverage on all homeowners policies. Make sure you understand how claims reimbursements will be calculated before you decide on a policy.
Remember that insurance exists to assist you with replacing your property when life deals you a bad hand. If you ever have to file a claim, you won’t end up better off than before the event happened, but it can really help you regain what you lost.