When shopping for home insurance, it isn’t just premium and coverage that can vary from policy to policy. How you’re reimbursed could also be different. If you ever need to use your insurance because your property is stolen or damaged, knowing how reimbursement is calculated for your claim will be an important detail for you. Read on to learn about Actual Cash Value and Replacement Cost Value, the two main types of reimbursement calculation.
Actual Cash Value
When your reimbursement is based off of the Actual Cash Value (ACV) of the items that must be replaced, you would receive a check for the present-day value of the item. Note that you wouldn’t be reimbursed for a new, rather depreciation would be factored into the reimbursement, even if the item was in mint condition when it was damaged. That means that you would probably have to pay some additional money from your own pocket to replace whatever was lost. Because you would have to kick in some money, ACV policies are less expensive than RCV policies.
Replacement Cost Value
When your reimbursement is calculated using the Replacement Cost Value (RCV) method, it’s a whole different story. Your policy would give you a check to cover the cost to replace your property (less any deductible), whether you had the item for a month, a year or 10 years. For example, if your 5-year-old computer was zapped by a power surge, an RCV policy would help you replace it with one of comparable size, computing power, and feature set. Since most computers available now are much smaller and faster, you’d likely receive a settlement to replace it with a much nicer model, that would be equivalent to what you had lost. Premiums for RCV policies are slightly higher, but they also offer you more compared to ACV policies, should you need to ever file a claim. We recommend Replacement Cost Coverage for most every homeowner policy sold.
Homeowners’ insurance differs from policy to policy. It’s best to take a close look at what your policy offers and to know the difference between actual cash value and replacement cash value before a loss occurs. Then at least you can upgrade your policy or be aware of what to expect if you should ever have to file a claim.
