u u u property is covered under . Replacement Cost or Actual Cash Value ? 2 If Actual Cash Value , ask yourself if you ’ re comfortable having your building ’ s covered value decrease with age .
INDUSTRY INSIGHT
INSURANCE
SPONSORED CONTENT
IS YOUR PROPERTY OVER-INSURED ?
“ But I would never be able to sell my building for the amount it ’ s insured for !”
From both homeowners and commercial property owners , we in the insurance industry hear this complaint a lot . And , admittedly , the policy your insurance carrier sent you probably doesn ’ t do much to clarify where the limits listed came from . So , let ’ s break it down . There are essentially two types of property coverage : Replacement Cost and Actual Cash Value . Knowing which one you have ( and what these terms mean ) could save you a ton of hassle in the event of a claim .
The less expensive of the two options , Actual Cash Value ( or ACV ), covers your property at a rate that factors in depreciation . As a piece of property gets older , its value goes down . So if an accident were to destroy that property , the amount your insurance carrier would give you to settle that claim lessens with time .
ACV for building coverage is rare , but it is how most carriers cover your contents . Televisions , golf clubs , computers , etc . – in the event of a claim , these are all typically valued according to how much it would take to replace them with contents of similar kind and quality , minus depreciation .
Needless to say , covering your home or business property itself on such a basis might save you money now in premium payments , but it could end up costing you a lot more if something unfortunate happens . Why ? Well , let ’ s look at Replacement Cost . Replacement Cost , on the other hand , is based simply on the amount it would take to replace what was lost . No depreciation . Just a one-for-one deal . This is how most standard policies cover your home or commercial property .
For an example , let ’ s say a building burns down . While that building might only sell for around $ 100,000 in the current market , it ’ s insured on a Replacement Cost basis and it would cost $ 200,000 to completely rebuild it , brick-by-brick . So , how much is that building covered for ? That ’ s right – $ 200,000 . And you might say to yourself , “ I would never rebuild my house if it burnt down – I would just buy another house . Why pay more for Replacement Cost ?” Fair question . But , what if the fire only destroyed the roof of that building ?
The people living there wouldn ’ t have much choice — they ’ d have to get that roof replaced . And with ACV coverage , their claim settlement would take into account the depreciation of that roof before it was destroyed .
That means a chunk ( maybe even a hefty chunk ) of the cost to replace that roof would be coming out of their own pockets .
And this is why we always strongly suggest Replacement Cost to our clients . Only in a few very special cases does it make sense to instead go with Actual Cash Value . Here are three simple steps to make sure you ’ re covered correctly : 1 Check your policy to see which basis your dwelling or commercial
u u u property is covered under . Replacement Cost or Actual Cash Value ? 2 If Actual Cash Value , ask yourself if you ’ re comfortable having your building ’ s covered value decrease with age .
3 If Replacement Cost , make sure the numbers are right . Ask a contractor , or ask us to run a quick , obligation-free calculation for you at RuppFiore . com / ReplacementCostRequest .
This Industry Insight was written by CANDICE FIORE SCHAFFER , a licensed insurance agent able to sell all types of insurance products including personal , business , life , and health . Her main focus is on business insurance and the personal insurance for those business owners . Candice has been with Rupp-Fiore Insurance since 1990 . She earned her bachelor ’ s degree at the University of Pittsburgh and a master ’ s degree in Risk Management / Insurance from Florida State University . Through the National Alliance of Insurance Education , Candice has also earned the Certified Insurance Counselor ( CIC ) and Certified Risk Manager ( CRM ) designations .
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