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Replacement Cost Insurance or ACV Insurance ?
I received a question concerning home insurance which ask; should I have replacement cost or actual cash value (ACV) insurance on my home? In this article I will explain the difference between replacement cost and ACV. The majority of American homeowners have ACV policies and have no idea. When most new home owners buy a home the mortgage company contacts a local insurance agent and gets the policy set in place. The mortgage processor normally picks the policy based on the lowest price. We will take a look at why going by price is a bad idea, but first I will explain the difference between the two policies.
Replacement cost insurance will give you the new cost value of your loss. An example is if your ten year old couch was damaged you would receive the comparable value of what the couch would cost today new. With an actual cash value (ACV) policy you would receive the depreciate value of the couch which may be fifty dollars.
Now back to why buying on the price can really cost you in the event of a claim. An ACV policy is always less expensive that a replacement policy. ACV will cover you in the event of a total loss, but will burn you when it comes to partial losses. If your home were to burn to the ground and the insurance company deemed it a total loss you would receive the total amount the home was insured for with both policies. But if you had a fire and the loss was deemed a partial loss the ACV policy cost really cost you.
As a former agent I would always give the following example. If you had a $20,000 loss, and your home was 15 years old, with the ACV policy the adjusted would factor in the depreciation and may only pay $13,000 towards your damages. This would leave you with a $7,000 difference you would have to come up with. With a replacement policy the adjusted would pay the full 20,000. Keep in mind you would have to pay your deductible.
So when shopping for home insurance be sure you are insured with a replacement policy. If you have any questions about insurance you can contact me at [please contact me for website address] . As a former agent I strive to help people understand insurance and find the best local rate available. People who enjoyed the article also read “5 Questions to Ask About Home Insurance”
Let us help you obtain multiple quotes on a replacement policy for your home, click the link below.
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