Replacement cost policy -- If you purchased a replacement cost policy, and have met the company's "insurance to value" requirement (the actual cost in today's market to replace your home), the company will first pay you the "actual cash value
" as described above.
After inspecting the storm damage, American Family provided Henn with a written estimate that explained the calculations for replacement cost value, actual cash value
, and depreciation for the claim.
If the RCV settlement is for $20,000 and the actual cash value
is $15,000, yet the insured spends $17,000 to restore the property to its preloss condition, then the insured is only entitled to $17,000.
Actual Cash Value
. Up to the policy limits this coverage pays the value of the damaged building or personal property minus a deduction for depreciation (depreciation could be caused by normal physical wear, but it could also be caused by obsolescence).
Please note that the determination of actual cash value
has resulted in many disputes, especially when attempting to settle claims involving older buildings with obsolete features.
The insurer will pay the lesser of the actual cash value
of the damaged property or the cost of repairing or replacing the damaged property with other property of like kind and quality.
The court said that "every fact and circumstance which would logically tend to the formation of a correct estimate of the loss," including the economic value of the property, should be considered in determining the actual cash value
* You have actual cash value
coverage on your home and contents.
The actual cash value
of the roof is the cost to replace it minus depreciation.
This statute essentially provides that when there is a total loss, the insurance company must pay to the policyholder the actual cash value
of the policy, namely the policy limits.
Some forms cover such property on an actual cash value
basis while others cover the property on a replacement cost basis without any deduction for physical depreciation.
In Patrick, the insurer paid the insured actual cash value
for damages from windstorm and held back depreciation until the insured completed the repairs.