Replacement Costs vs. Actual Cash Value

Do you know the difference between Replacement Costs (RC) and Actual Cash Value (ACV)?  A lot of people had no idea what these two phrases meant until after Hurricane Katrina wiped out their homes and all of their worldly possessions.  Yet, I still run across policies that are purchased and have ACV instead of the RC cost rider.  For those of you who have never had to use your insurance and have no idea what I’m talking about, I’ll explain…

REPLACEMENT COST

Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

ACTUAL CASH VALUE

A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation.

Basically, in the instance of a loss if you have an ACV policy they’re going to say:

Suzie Q’s  home is insured for $200,000 but it’s 30 years old. So based on a 10% per year depreciation factor (30%) the amount of your settlement will be $140,000   ( 200,000 x .30= 60,000  then 200,000 – 60,000= 140,000).

Can you rebuild your home for that $140,000?  Wouldn’t you be mad if you’ve been paying for $200,000 for insurance for all these years only to get paid $140k? I would be!  Did you know that adding replacement costs to your policy on average costs between $150-$250.00 per year?  If Suzie Q’s home policy had had the replacement costs rider and her home burned to the ground she would have received the whole $200,000 NOT $140,000.  Just some food for thought.  If you’re not sure if you have ACV or RC on your policy pull it out, dust it off and actually READ it.  Dont’ know what you’re looking at? Call your agent or give us a call @ 985-201-8700 and we’ll be happy to do a free insurance review for you.

Have a great day!

RandeeHReplacement Costs vs. Actual Cash Value

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