Should Homeowner’s Property Damage Insurance Cover Actual Cash Value Or Replacement Costs?
Property damage insurance protects you against unexpected events. Whether yours reimburses you for the actual cash value of items or their replacement costs could make a major difference in the amount you are entitled to in a property damage claim. Find out the difference between these types of coverage to determine which one is best for you.
Actual Cash Value Versus Replacement Costs
Homeowners insurance provides important protections but if you are unfamiliar with certain terms, you could be in for a surprise when it comes time to file a claim. The Insurance Information Institute (III) warns that the way your policy reimburses losses could cause you to get far less in a settlement.
Whether you are purchasing a new property damage policy or reviewing coverage you currently have in place, pay attention to the wording in regards to payouts on claims. You will generally see one of the following terms:
- Actual cash value (ACV): Many property damage policies reimburse you for the actual cash value of damaged items. This is what the item is currently worth, minus any depreciation.
- Replacement cost value (RCV): As the name implies, this type of coverage reimburses you for the cost of either repairing or replacing the damaged property. This is often the better option, as it can entitle you to greater amounts in a settlement, helping you avoid out-of-pocket costs.
You can also get extended replacement costs included in your property damage coverage. This requires the insurer to pay the full amount of damages, even if they exceed your policy limits 9generally due to higher construction costs). However, be aware that the maximum amount you may be entitled to is generally limited to up to an additional 25 percent of the original policy limit.
How Actual Cash Value and Replacement Values Work When Filing A Property Damage Claim
Replacement cost value and extended replacement costs generally offer greater protections, but they will also increase your policy premiums. Read over the declarations page of your insurance policy carefully prior to making any upgrades. In many cases, damages to your home or other structures are already covered for replacement costs. The upgrade you will be making may only be for personal property. This includes furniture, clothing, jewelry, artwork and antiques. Policygenius uses a damaged two-year-old living room sofa as an example:
- An actual cash value policy would reimburse you what you paid for the sofa ($3,000) minus depreciation. At just 10 percent per year, this adds up to less than $2,500 in a settlement.
- A replacement cost value policy factors in what the same type of sofa is currently selling for, meaning you are likely to get just as much if not more than the $3,000 you originally paid.
Reach Out to Us Today for Help
Need guidance in dealing with property damage insurers and negotiating a settlement on a claim? Reach out to Bundza & Rodriguez. Contact our Daytona Beach property damage attorneys and request a consultation today.