It is important to know whether your Homeowners Insurance affords Replacement Cost or only settles losses for their Actual Cash Value.
Replacement Cost is what you would pay to rebuild or repair your home, based on current construction costs. Replacement cost is different from market value and does not include the value of your land. Ask your company if you are not sure how much it would cost to rebuild your house.
Actual Cash Value is what you would pay to rebuild or replace your property minus depreciation. Depreciation is a decrease in value due to wear and tear or age. If your home is destroyed and you only have actual cash value coverage, you may not be able to completely rebuild.
Your Homeowners policy contract will specify how a loss is settled. At time of loss, the insurance company claim adjuster calculates what it will cost to repair or replace the damaged property with new materials or items and then will deduct an amount from that figure based on the age and condition of the damaged property. The amount deducted is called Depreciation.
If your policy only covers for Actual Cash Value, you will not be able to recover the Depreciation.
If you have Replacement Cost coverage in your policy, you can recover the Depreciation once you repair or replace the damaged property provided you have met the policy conditions,
It is important to note, that the amount of insurance you carry must be substantially what the replacement value of the property is at the time of loss. If you insure your property for less, you may not be able to recover any or all of the Depreciation which was deducted.
It is also important to note that your policy will limit the time you have in which to recover the Depreciation.
If you would like more information about Replacement Cost and Actual Cash Value, the licensed agents at Northside Insurance Agency are available to discuss your options.