TUESDAY, JULY 19, 2016
Let's face it- unless you're in insurance, you probably don't spend too much time reading about Replacement Cost and Actual Cash Value (what???? *shocking*). So if you don't know what the terms mean, that it's pretty much impossible to know the difference BETWEEN the two terms. But if you're a homeowner, it's critical you have a handle on the basics, as well as the difference between the two, so you're not unhappy at claim time. .
Replacement Cost versus Actual Cash Value- This matters the most at claim time. And that is NOT the time to find out your claim is not going to get paid like you expected.
So if you don't want to be surprised by a claim settlement, take a few minutes and read on. A basic understanding of these terms will help eliminate 99% of most claims problems and arguments.
Replacement Cost versus Actual Cash Value- here's a claims example that should really hit the point home.
A high wind blows off your roof.
Claims Situation #1- Here's how it would be settled under the Replacement Cost loss provisions:
A new roof costs $10,000. Your deductible is $1,000. The insurance company would write a check for $9,000, which is the cost of the roof minus your deductible.
Claims Situation #2- How it would be settled under Actual Cash Value:
We know the roof costs $10,000. Depending on the age of the roof, the insurance company will depreciate the claim.
Bill to replace the roof: $10,000
Depreciation due to age: -$3,000 (30% depreciation as an example)
$6,000 paid by insurance
As you can see by the above examples, with a replacement cost loss settlement you will receive more for your claim, in this case, $3,000 more.
So which should I choose? Replacement Cost versus Actual Cash Value- Ohio homeowners insurance
Most homeowner insurance policies insure the house at replacement cost. That makes sense right? If something happens to your primary residence, you would want it rebuilt like it is or repaired to look like it did before the claim. Perhaps you'd want a few minor modifications, but you'd definitely want "your house" back again, like it was before (which is, incidentally, the purpose of homeowners insurance). Without hesitation, we use Replacement Cost on our owner-occupied homeowners insurance policies. It adds up to peace of mind for you and provides a much better loss settlement. Again, when you suffer a tragedy like a loss to your home, the last thing you want to get is a check for only a portion of your damages. You have enough stress at that time- you don't need more. You want to get back on your feet as quickly as possible.
Now think of a rental house. If you own a house, but rent it out, you may only be concerned with paying off your mortgage if something happens to it. You would never rebuild it- again, the property is only an investment. So getting a depreciated loss settlement is not a big deal.
One of the main reasons people choose to insure any property at Actual Cash Value is because you can insure at a lesser amount, which adds up to lesser premium.
However......the majority of property claims are PARTIAL losses, so it's quite possible if you elect an Actual Cash Value loss settlement, you may not get enough to fix the damage. It does happen. Again, you have to be comfortable with that possibility.
So how do I make the right choice? Replacement Cost versus Actual Cash Value- Ohio homeowners insurance
Hands down, your best option is to contact an independent insurance agent, particularly one with a background in homeowners insurance (yes, not all agents handle all lines of insurance). We can explain the basics of Ohio homeowners insurance, review your situation in detail and make recommendations that will work best for you and NOT surprise you in the event of a claim. Your home is your largest investment- let us help you protect it the way it (and YOU) deserve. Call us or submit your Bellefontaine Ohio homeowners insurance quote request today!
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