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Before disaster strikes your home is always the best time to review your renters or homeowners policy to be sure the coverage you have matches your expectations. This page discusses some of the most common questions many consumers have about insurance for their home and possessions.
What is Actual Cash Value?
Actual Cash Value (ACV) is the cost to repair or replace an insured item of property at the time of the loss, less depreciation. The value of depreciation is based on the age and condition of the item. Personal property, such as contents, is typically settled at ACV unless the insured purchases Replacement Cost Coverage.
What is Replacement Cost Coverage?
Replacement Cost Coverage (RCC) is the cost to replace lost or damaged property with new property of like kind and quality at current prices. For an additional premium, it is available for buildings and contents. Some insurers automatically include RCC in the homeowner policy; however, usually it is an optional coverage that must be purchased.
If you insure the dwelling with replacement cost, the amount of coverage should be equal to 100 percent of the cost to repair or replace the building. If the dwelling is not insured at the cost to replace it, penalties may apply. Some property policies include 125 percent of the RCC amount in the event the coverage limit is exhausted.
If you purchase a policy insuring your home for $200,000 when it will really cost $750,000 to replace it, you will not get more than the value listed in the policy, even if the policy says it covers “Replacement Cost”. If that happens, it means you were under-insured. It is the homeowner’s responsibility to be sure the policy they purchase includes the coverage they need.
The age of your home, the materials used to build it, where it’s located, the square footage and its distance from a fire hydrant all generally play a role in premium rates. If your home is in a location (such as mountains or a remote area) that is harder to reach, whether for construction, repairs or emergencies, your premium may be more than the premium for a similar house that is in an urban area. You must take the cost of rebuilding in your particular area into consideration when you and the insurance company agree on the value of your structure.
What to do if you and your insurance company disagree: