Do you know if your home insurance policy pays Replacement Cost or Actual Cash Value? You may not know, but don’t wait any longer to find out the answer. You could be in for a surprise if a claim happens.
Replacement Costs is always, well almost always, the way dwelling coverage is paid in Florida. However, on Personal Property (PP) it is optional. The Lender does not care so much about your property being replaced as brand new. When I talk to people about home insurance, I ask them if they are looking more for price or coverage (value). Replacement Costs on PP is for a value type customer as it is more expensive.
Replacement Cost is paid without depreciation. It is like replacing a 5-year old sofa for a brand new one. That 3-year old TV will be not lose any value if it is damaged from a covered loss.
Actual Cash Value
Actual cash value, or “market value,” would consider depreciation or the loss of value over time in calculating what the insurance company would pay.
In Florida, auto insurance covers your car for actual cash value. They look at the age of your car and the mileage and settle with you accordingly.
Something like”New Car Replacement” may be a type of replacement costs valuation. But they are limited time that they will cover.
Why do people get actual cash value?
Many people that I speak with do not trust the insurance company and their depreciation tables. Ultimately, it usually comes down to price. The difference can be hundreds of dollars per year.
Most of the time people are trying to qualify for a mortgage and need to keep their debt-to-income ratio stays within the Lender’s guidelines. In this case, although they may want replacement costs on their personal property, they may need to at least initially get actual cash value coverage.