Congratulations! You are taking a big step and buying your first home – but there are so many different aspects of home buying that you need to consider when purchasing your first home. Mortgage lenders, Interest Rates, Escrow, Taxes, Insurance….while we can’t help with all of it, we can help with the insurance side.
Below are two of the most common topics of confusion when it comes to homeowners insurance. If you are able to understand these topics, you will be one step closer to understanding your homeowners insurance!
Understanding Home Insurance Values
Property insurance contracts contain wording that defines how much an insurer is obligated to pay for a covered loss. Much of that obligation depends upon what value your property is insured for and how that value is determined.
Unlike appraisals which are based on market value (selling price) of a home, the evaluations used for insurance purposes include factors such as cost of building materials, geographic location, cost of labor, and calculations for the high cost of repairing partial home damage to determine the replacement value of your home. The other major difference between a home appraisal and an insurance valuation is the fact that the land beneath your home will not lose its market value if the structure is damaged and therefore, has no affect on the insurable value of the home.
How to determine your home’s insurable value
Your agent will request detailed information about your home’s structure, size, contents and features in order to determine the cost of replacing some or all of the structure if they are damaged or destroyed. Your agent will then input this information into the insurer’s replacement cost estimator software and determine the replacement value of the home based off current construction costs.
When speaking in insurance terms, replacement value means your home must be insured to 100% of the value needed to replace the damage using like kind and quality materials, construction standards, design, layout and quality of workmanship.
Roof Settlement – ACV vs RC
Carriers offer two options for settlement on roof claims – “Actual Cash Value” or “ACV” and “Replacement Cost” or RC. With ACV, your carrier pays to repair or replace the damaged portion of your roof, less your deductible and depreciation for the age and type of roof. With RC, however, your carrier pays to replace the damaged portion of your roof without factoring in depreciation, once you’ve met your deductible.
ACV loss settlement with $500 deductible
Roof is 15 years old and the cost to replace it would be $8,000. Loss settlement received from your insurance company would be $1,500.
$8,000 x .75 (depreciation) = $6,000
$8,000 – $6,000 – $500 = $1,500
(RC) – (depreciation) – (deductible)
RC loss settlement with $500 deductible
Roof is 15 years old and the cost to replace it would be $8,000. Loss settlement received from your insurance company would be $7,500.
$8,000 – $500 (deductible) = $7,500
For more information on this, or to review your homeowners policy, please contact your agent today at 920-833-6871 or 920-730-0123.