With recent rising home values, it makes sense to review your Homeowners coverage

    With home values rising within the last three to five years, it pays to thoroughly review the coverages that you have on your home.

    One of the major categories of coverage on many policies are either ACV (Actual Cash Value) coverage or RCV (Replacement Cost Value) coverage.

    If you have Replacement Cost Value (RCV) coverage, your policy will pay the cost to repair or replace your damaged property without deducting for depreciation.  

    If you have Actual Cash Value (ACV) coverage, your policy will pay the depreciated cost to repair or replace your damaged property. 

    Insurance companies usually calculate depreciation based on the condition of the property when it was lost or damaged, what a new item would cost, and how long the item would normally last. 

    For example, let’s say we have two families, the Smiths and the Johnsons. Both families have the exact same amount of damage ($15,000) to their roof. Each family also has a $1,000 deductible. A deductible is the part (or amount) of the claim you will have to pay out of pocket. 

    The Smiths have an RCV policy, meaning once the roof is replaced, they will be reimbursed the full cost of the roof repair, minus their deductible. The Johnsons have an ACV policy, meaning they will only be paid for the current value of the roof repairs, minus depreciation and their deductible. 

    The breakdown of their payments is below.  

    Family 

    Damage 

    Depreciation 

    Deductible 

    Payment 

    Smith Family 

    $15,000 

    - n/a 

    - $1,000 

    = $14,000 

    Johnson Family 

    $15,000 

    - $10,000 

    - $1,000 

    =   $4,000 

     

    Most Property and Casualty professionals will recommend getting guaranteed or extended replacement cost coverage. This is valuable especially when the cost to rebuild one’s home has gone up tremendously from even only about two years ago. This type of insurance will pay to rebuild your home no matter what the costs are. There will be no out of pocket costs to the insured, other than the initial deductible. The premiums may be higher, but certainly worth the peace of mind.

    If you need help with this, we can refer you to a reputable Property and Casualty (P&C) professional to assist you in determining the best course of action for your property. As always, email or call us if you have any questions.