Actual Cash Value vs. Replacement Cost
Don't trip over pennies and lose thousands on a Homeowners Insurance claim! Be sure your Homeowners policy has "replacement cost" on dwelling and contents (personal property). If not you may be setting yourself up to lose thousands during a claim.
What is "Actual Cash Value"?
The term ACV or "actual cash value" is not as easily defined. Some courts have interpreted the term to mean "fair market value," which is the amount a buyer would pay a seller if neither were under undue time constraints. Most courts, however, have upheld the insurance industry's traditional definition: the cost to replace with new property of like kind and quality, less depreciation. Courts have varied in their rulings as to whether or not depreciation includes obsolescence (loss of usefulness as a result of outmoded design, construction, etc.).
The term ACV or "actual cash value" is not as easily defined. Some courts have interpreted the term to mean "fair market value," which is the amount a buyer would pay a seller if neither were under undue time constraints. Most courts, however, have upheld the insurance industry's traditional definition: the cost to replace with new property of like kind and quality, less depreciation. Courts have varied in their rulings as to whether or not depreciation includes obsolescence (loss of usefulness as a result of outmoded design, construction, etc.).
What Does "Replacement Cost" Mean?
The term "replacement cost" is defined or explained in the policy. Simply stated, it means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. This applies unless the limit of insurance or the cost actually spent to repair or replace the damaged property is less. Refer to your policy for the exact definition and explanation of replacement cost.
So What's the Difference?
The difference between replacement cost and actual cash value is a deduction for depreciation. However, both are based on the cost today to replace the damaged property with new property.
The term "replacement cost" is defined or explained in the policy. Simply stated, it means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. This applies unless the limit of insurance or the cost actually spent to repair or replace the damaged property is less. Refer to your policy for the exact definition and explanation of replacement cost.
So What's the Difference?
The difference between replacement cost and actual cash value is a deduction for depreciation. However, both are based on the cost today to replace the damaged property with new property.
Replacement cost coverage costs dollars a month extra. That being said let's say you have $100,000 worth of contents (personal property) lost in a fire. Under ACV your depreciated amount could be 60% due to depreciation giving you a $60,000 payout on your $100,000 worth of items. Under Replacement Cost your $100,000 in contents would be payed out $100,000. So under ACV you would lose $40,000 worth of contents. Is $40,000 loss worth saving a couple hundred a year?
Bundling your Home and Auto insurance policies can save up to 30%, call us to find out. We specialize in San Diego, Carlsbad to National City Ca. We also can provide Earthquake and Flood insurance to compliment your Homeowners policy.
National City, Ca. 91950
Office: 619.477.6330
Bundling your Home and Auto insurance policies can save up to 30%, call us to find out. We specialize in San Diego, Carlsbad to National City Ca. We also can provide Earthquake and Flood insurance to compliment your Homeowners policy.
Taylor Company Insurance & Financial Services
2504 Transportation Ave Ste ANational City, Ca. 91950
Office: 619.477.6330
Fax: 619.477.1882
Website: www.taylorhouseinsurance.com
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