When you buy home insurance, your mind often goes to what will happen if you have a claim. One question I often get asked in my agency is if the insurance company will replace everything back to the way it was before a covered event happens. In short, my answer is…it depends. There are a lot of factors to consider when discussing how a claim is paid. One thing to consider is if you have ACV or RCV coverage on your contents.
Actual Cash Value (ACV)
ACV or actual cash value is the depreciated value of the item at the time of the covered claim. This is taking into consideration wear and tear and the age of the item – think “garage sale price”. Actual cash value is often not enough to buy a new item, putting you in a tight place when you are trying to replace the important things in your home.
Replacement Cost Value (RCV)
RCV or replacement cost value provides you with the necessary money to replace the lost items. This is better than actual cash value as it puts you in the same position that you were in before the loss.
Be aware, when replacement cost coverage is in place, you will usually need to replace the item before the insurance company will pay your claim. There may be exceptions to this. Consult your home policy for terms and conditions.
How Do I Get Paid for a Homeowners Insurance Claim?
It is sometimes assumed that if there is a total loss, you will simply get a check for the contents limits of your policy. This is not the case. That is the maximum you will receive in the event of a claim.
If you have replacement cost coverage, you will usually receive your settlement in two payments. After evaluating the damage, the insurance company will provide actual cash value for the lost items first. Next, you will need to provide proof that you have replaced the items in order to receive final payment. This will most likely be done over time with the help of an insurance adjuster.
It pays to take the time to make sure you have replacement cost coverage on the contents of your home. This will save you major headaches in the event of a covered claim.
Disclaimer: Every carrier’s insurance policies are different. Please consult your homeowners policy for specific coverages, exclusions, and limitations.