Let’s face it – if you’re not in insurance, you’re probably not spending too much time reading about insurance, let alone diving into terms like Reimbursement Cost and Actual Cash Value (also abbreviated to ACV). So if you do not know what the terms mean, then it is quite impossible to know the difference BETWEEN the two terms. But if you are a homeowner, that’s it CRITICAL You know what these terms mean and the differences between the two, so you are not surprised or dissatisfied at the time of application.
So if you do not want to be surprised by a homeowners insurance deal in Ohio, take a few minutes and read on. A basic understanding of these terms helps eliminate 99% of most problems and arguments. Two claim examples are also provided to help you better understand the difference.
What is the replacement cost?
Replacement cost is the cost of repairing or rebuilding at current prices.
What is real cash value?
Actual cash value is Replacement cost MINUS depreciation for age and wear and tear. Read on for two examples that illustrate these definitions in practice.
Actual cash value versus claims cost claim Example # 1
A storm rolls through your area and the strong winds tear off your roof.
Here is a simplified version of how this claim would be resolved under Compensation Cost.
A new roof costs $ 10,000. Your deductible is $ 1,000. The insurance company would write a check for $ 9,000, which is the cost of the ceiling minus your deductible.
Actual cash value versus claims cost claim Example # 2
Let’s stick to the take example, BUT talk about how it would be settled under Actual Cash Value.
We know the ceiling costs $ 10,000. Depending on the age of the roof, the insurance company writes off the compensation. Continue reading for that example.
Note to change the roof: $ 10,000
Depreciation due to age: USD -3,000 (30% depreciation as an example)
$ 7,000 paid
$ 1,000 deductible
$ 6,000 is paid by the insurance
As you can see from the examples above, with a compensation cost loss settlement, you will get more for your claim, in this case $ 3,000 more.
So how do I know what to choose – actual cash value versus compensation cost?
If you own your home, the chances are REALLY good that you want to insure your house at a replacement cost. That makes sense, doesn’t it? If something happens to your primary residence, you would want it rebuilt as it is or repaired to look like it did before reporting the damage. Maybe you would like some minor changes, but you would definitely like to have “your house” back again, as it was before (which, by the way, is the purpose of homeowners insurance).
For this reason, the replacement cost is the standard for Ohio homeowners insurance. It gives you peace of mind and gives a much better loss settlement. Again, when you suffer a tragedy as a loss to your home, the last thing you want is a check for only part of your injuries. You have enough stress at that time – you do not need more. You want to get back on your feet as quickly as possible.
But in some cases, a home may have certain problems that PREVENT compensation costs (mainly insurance situations such as a home that does not have electrical, heating, plumbing or roof updates or has additional maintenance requirements). So maybe the homeowner’s insurance is written on the ACV for the house, with the provision that when the necessary updates are ready, it will be edited at replacement cost.