When buying home or property insurance, there are a few common valuation choices for how your home or business would be covered in a loss. Valuation has to do with how claim dollar amounts are arrived at, in connection with the physical damage to your property. This is one big area where not knowing what you are buying could cost you tens of thousands if you have a serious claim.
The most common choices for property valuation in general terms are:
- Replacement Cost - This pays to replace the elements of your property with similar materials to what was there before the loss, up to the limit of insurance. Your limit of insurance needs to be adequate to rebuild the property as it stands. If you have plaster walls for instance, be sure to have enough limits to rebuild plaster walls.
- Repair Cost - This pays to repair your property functionally after a loss but does not promise to use the same materials. That plaster wall would probably get replaced with modern drywall. And your limit of insurance often could be based on a market value and is not enough to rebuild your entire property.
- Actual Cash Value - This method deducts depreciation from any loss settlement based on age. So, that old plaster damaged in a claim might only pay out say 50% or less of what it might cost to replace. Depending on age of the elements of a structure, this one could cost you thousands of dollars in out of pocket expense if you need to repair your property.
While ACV isn't usually ideal, often it can be your only option for situations like vacant buildings, buildings in some disrepair, or old buildings. Repair cost isn't ideal either, but it can sometimes save you a lot on premium and often is required in lower market value areas. So if you have a building that might cost $500,000 to replace, but if a total loss happened all you needed was $150,000 to perhaps put up a smaller or less ornate structure, repair cost might be a decent option for you.
Typically replacement cost, or enhanced options like extended replacement cost, are the broadest option available, and most home and business policies are usually written with replacement cost coverage. But buyer beware- make sure you know what type of coverage you have purchased or you could be paying a lot more out of pocket at claim time than you might expect.
For more information or to discuss options for insurance with Hardt Insurance, please contact us today!