The purpose of insurance is to get you back into the position you were financially before a claim. The problem is, depending on the policy you have, you may be in for an unpleasant surprise.
For this topic, we’re really gonna center on your home policy, home dwelling policy, condo policy or renters policy, just something that’s going to be more for personal property for the place that you live.
Every policy pays claims in one of two ways. We call it “valuation”. Valuation refers to the method of payment that the policy will apply to how your claim.
Those methods are either: Replacement Cost or Actual Cash Value. Usually abbreviated or states ad RC or ACV.
Replacement Cost is the preferred option. Replacement cost means that the insurance company will pay you enough to repair, rebuild, or replace whatever the items were that were lost, damaged, or destroyed, regardless of age and wear and tear. A claim paid under this valuation method will not apply depreciation to a claim. Here is it in a nutshell, the policy will replace the old stuff with new stuff.
Actual Cash Value or ACV is another option commonly used. When ACV is the valuation method, a claim payment will be reduced due to age and wear and tear. Under this option, depreciation will be applied against the claim payment. In other words, the policy will replace old for old, but even then, it will likely not pay enough to rebuild, replace, or repair your stuff.
So for instance, let’s say that you have a brand new television, a couple of years go by and you have something happens to the television, and it gets struck by lightning, and you have an ACV policy, they’re going to look at that television see how much it would cost to buy a brand new and then because it’s now two years old, they’re going to depreciate that claim. So you’re going to get less for how much that claim is. However, if you have a replacement costs policy, and as we say RC, or RCV, but replacement costs are replacement cost value, means they’re gonna buy you new, for old.
There are some occasions where Actual Cash Value may be the only option available, but those instances are rare.
If you see that your policy is an ACV policy, ask for another option. If you don’t feel like your agent is providing you with the best option for you, reach out to our office, we will be happy to review your coverages and your situation.
The important thing is that you discuss these options with your independent insurance agent and make sure you have an independent insurance agent who will educate you regarding your options.
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Beaux Pilgrim, CEO