How Will I Know the Best Way to Insure My Home?

When you purchase Homeowners Insurance, you must choose a valuation method to insure your home. What is the difference between replacement cost, actual cash value, and market value? Let's take a few minutes to discuss each one.

REPLACEMENT COST is the cost to construct new property of the same kind and quality as the property that was damaged. The policy will pay the cost to restore the dwelling without deducting for depreciation.

ACTUAL CASH VALUE is replacement cost less a deduction that reflects the property's age, condition, and other factors that effect its remaining usefulness. The difference between REPLACEMENT COST and ACTUAL CASH VALUE is depreciation.

MARKET VALUE is the highest price a buyer would be willing to pay and the seller would be willing to accept for property in the fair market. MARKET VALUE is not considered when settling a loss or in determining an amount needed to satisfy the insurance contract.

EXAMPLE: Your roof is blown off in a tornado; the roof is ten years old and would be expected to last 20 years. The cost to replace the roof is $5,000. An ACTUAL CASH VALUE policy would reimburse you $2,500 for the unused value remaining to the roof; it would not pay the entire cost to repair the roof. A REPLACEMENT COST contract would pay the entire $5,000. MARKET VALUE would not be considered.

If you have any questions or need advice on which method fits your needs, please contact us.

NOTE: All descriptions of coverage are subject to the actual provisions of the policy. The policy should be consulted to determine whether any given loss is covered.