Why Is Replacement Cost Best for Home Insurance than Actual Cash Value?

Hey guys, Jason here with 303 Insurance Brokers. I hope you’re doing well today. I know I am. I wanted to talk to you guys about, uh, this will be a little bit of an interesting topic, but it’s called it’s on settlement terms.  ACV or an Actual Cash Value and Replacement cost

What is Settlement Terms

Settlement terms is how an insurance company is going to pay you during an insurance claim.

2 Types Of Settlement Terms

Depending on what type of insurance it is, the settlement term. Very important to understand and base the two settlement types:

1.  ACV or an Actual Cash Value option, which will be a depreciated cost. It’s going to be a lower value. 
2. Replacement cost is replacing it at two days dollars to do it.

The Difference Between ACV or an Actual Cash Value and Replacement Cost

Here are 2 examples of how both works. ACV policies work for Auto Insurance. Suppose you wreck a 2012 Subaru Forester. They will give you the value of a 2012 Subaru Forester, and you can go pick up something of alike, what vehicle, or you can pay toward an upgraded option. Still, they’re compensating you on that value of that 2012.

Now, if we flip it over to the home insurance side and you need a new roof, and your roof was last replaced in 2012, You don’t have an option to go out and rebuy a 2012 roof. You have to buy a new roof. That’s the only option. Whereas cars have secondary value markets roofs. You can only put on a brand new roof. So a roof policy, anything dealing with the home, you want replacement costs.

Which Settlement Terms Is Best For You

Replacement costs is going to fix it in today’s dollars. Could you buy replacement costs for your auto insurance policy? Some carriers may offer it. There is a lot of times there is a new car coverage that you can put on your vehicle when it’s brand new for the first couple of years.

But historically, cars are going to be ACV, actual cash value. What is today’s value of that vehicle because you have the opportunity to go in and replace it with a like model we’re roof you must have replacement costs because you can’t use ten-year-old shingles. You don’t have the ability to go to a secondary marketplace for it.

It’s important to understand how your settlement terms work with your insurance. If you have any questions, reach out to me, Jason@my303insurance.com or 303.506.2755. Hope to hear from you and have a great day.