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?
Replacement Cost:
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:
The replacement cost less a deduction that reflects the property's age, condition and other factors that affect its remaining usefulness. The difference between Replacement Cost and Actual Cash Value is depreciation.
Market Value:
The highest price a buyer would be willing to pay, and that the seller would be willing to accept for a property on the open market. At Preferred Mutual, market value is not a consideration when settling a loss.
See how each of these coverages differ in the following example:
Imagine your roof is blown off in a tornado. The roof is 10 years old and would have been expected to last 20 years when it was installed. The cost to replace your roof is $5,000.
» The Actual Cash Value policy would reimburse you $2,500 (minus your deductible) for the unused value remaining to the roof; it would not pay the entire cost to repair the roof.
» A Replacement Cost policy would pay the entire $5,000 (minus your deductible).
» The Market Value would not be considered.
Preferred Mutual Insurance Company prefers to use the Replacement Cost valuation method for determining the insurable value of your home.
This is the best way to make sure you are adequately covered so you will not be penalized at the time of loss- it also tends to make customers happier whenever they find themselves in unfortunate claims situations like these. If you have any questions or need advice on which home valuation method best fits your needs, please contact your Insurance Agent.
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.