If you’ve ever gone through an insurance claim involving any type of property loss, you’ve probably heard the insurance company’s adjuster throw around terms like “Replacement Cost,” “Actual Cash Value” or “ACV,” and “Depreciation.” These are all standard terms that those of us within the industry are familiar with. However, to the average policyholder the terms can be confusing. In this post, we’re going to try to make these terms a bit easier to understand.
REPLACEMENT COST
It’s easy to remember that replacement cost is exactly what it sounds like. In insurance terms, it is the maximum amount your insurance company will pay to replace the item at today’s prices. This amount is likely higher than what you originally paid for an item that was damaged or destroyed in a loss.
ACTUAL CASH VALUE (OR ACV)
The actual cash value (or ACV) for an item is the amount your insurance company will pay you for an item after deducting for depreciation. This value is not as easy to determine as the replacement cost value. Another way to look at it is that the ACV amount is the fair market value of your used item – the amount a willing buyer would pay for it in its pre-loss condition. Insurance companies use fancy algorithms to determine how much a 5-year-old La-Z-Boy recliner is worth now, or the amount your 3-year-old set of golf clubs is worth. Every item depreciates as it ages (with the exception of antiques and other collectible items). Determining the ACV of your items is just as important (if not more important) than determining their replacement cost value. I’ll tell you why in a minute.
DEPRECIATION
Depreciation is the loss in value of an item from normal age, wear and tear. Sounds pretty cut and dry, right? Wrong! Depreciation is one of the most subjective parts of your claim. If you don’t have a claim expert advocating for you on your claim, it’s likely that you will experience what’s known as “excessive depreciation.” Some insurance company adjusters simply choose arbitrary home insurance depreciation values to assign to items. Others try to paint the entire claim with a broad brushstroke and depreciate everything by the same percentage. It’s important that depreciation is properly calculated, as this is the amount the insurance company will hold back when they issue their settlement check to you. In order to get the insurance company to release the withheld depreciation, you must provide receipts for the replaced items. The insurance company will pay up to the amount of the agreed replacement cost value for each item.
CONCLUSION
Having a public adjuster on your side during a claim can mean the difference between the insurance company excessively depreciating your damaged items (without you even realizing it), and getting a fair settlement for your claim. If you’ve experienced an insurance loss and need help with your claim, please call us today for a free claim consultation. We’ll let you know within 20 minutes if we can help you or not.
