Home Insurance Articles
What Actual Cash Value Means To A Home Insurance Claim
2010-04-20
When you purchase a home, you want to ensure that it is fully protected from any type of peril. A home owner insurance policy protects the home owner from excessive financial costs that one would normally not be able to afford. For example, if your roof or siding was damaged by hail, your insurance company would pay for the damages. If someone broke into your home and stole your computer and stereo system, your insurance policy would replace these items. In order to have these repairs made and items replaced, you need to first file a home insurance claim. The insurance adjusters will then determine the amount that they will pay for your loss. There are a few different methods that they use to calculate this amount. The two most common are replacement cost and actual cash value. Both methods have their pros and cons, and each one is most beneficial to a certain party.
Replacement cost is the method that most home owners would prefer to use for a home insurance claim. This simply means that the insurance company will replace the item with another item that is constructed of the same materials and quality. For example, if you had your camera stolen, the insurance company will replace it with a similar make and model. They will not even consider the fact that you have had the camera for two years and that you used it every day, causing substantial wear and tear. Keeping receipts and pictures will especially help you out with this method.
Actual cash value is the method that most insurance companies prefer to use for any home owner insurance claims. Basically, this means that they will replace the item with similar materials or quality, less the depreciation. This is the only difference between the two. So, if we go back to the camera example, they would take into account the fact that your camera has been well used over that two year time period, and you will receive less money for it than if it was brand new. Actual cash value is the method that most courts use to determine replacement as well. They also take into consideration if the make and model of the item is no longer produced.
As a homeowner, you need to be fully aware of which method your insurance company uses, so that if you do have to make a claim on your home owner insurance policy, you will not be greeted with any surprises. Review your policy annually and make sure that you keep accurate records of all of your property. This will make the home owner insurance claim process go more smoothly and help eliminate any stress or worry.