Author Topic: Homeowner Insurance Questions - So Confused!!  (Read 676 times)

Alenzia

  • 5 O'Clock Shadow
  • *
  • Posts: 74
  • Age: 32
  • Location: Colorado
Homeowner Insurance Questions - So Confused!!
« on: May 23, 2017, 04:41:35 PM »
We're delving into the world of figuring out our homeowner insurance policy, and that's led to much confusion which none of the insurance agents we've spoken to have been able to clarify. Hoping to get some clarity from the wisdom of the group:

1. Replacement Cost Value vs. Actual Cash Value - I understand the theory, one is what it would cost to replace the item, the other is the depreciated value. But what happens if for example we have a 20 year old roof and it gets hail damage? Is the ACV now 0, so it's basically not covered? Or if we have a kitchen fire that causes $10k in wall damages?

2. Four different insurance companies gave us four different replacement cost values for Dwelling Coverage, $100k difference between the lowest and the highest. What gives?

3. We have an option to enter a lower dwelling coverage than their system estimates, for example $200k instead of $300k. But then we would be "66% covered". Does that mean if we have a repair that's less than the full amount, like the $10k kitchen fire above, we'd only get 66% of the value, or does the value represent the overall cap for total loss?

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 5759
  • Location: BC
Re: Homeowner Insurance Questions - So Confused!!
« Reply #1 on: May 23, 2017, 05:38:53 PM »
We're delving into the world of figuring out our homeowner insurance policy, and that's led to much confusion which none of the insurance agents we've spoken to have been able to clarify. Hoping to get some clarity from the wisdom of the group:

1. Replacement Cost Value vs. Actual Cash Value - I understand the theory, one is what it would cost to replace the item, the other is the depreciated value. But what happens if for example we have a 20 year old roof and it gets hail damage? Is the ACV now 0, so it's basically not covered? Or if we have a kitchen fire that causes $10k in wall damages?

2. Four different insurance companies gave us four different replacement cost values for Dwelling Coverage, $100k difference between the lowest and the highest. What gives?

3. We have an option to enter a lower dwelling coverage than their system estimates, for example $200k instead of $300k. But then we would be "66% covered". Does that mean if we have a repair that's less than the full amount, like the $10k kitchen fire above, we'd only get 66% of the value, or does the value represent the overall cap for total loss?

1.  Yes.. end of life would mean $0 to you if damaged.. but I expect many plans only use ACV basis insurance for normal  items, such as TV's and portable goods, sometimes a roof.   Also, note that if the entire home is destroyed, even if you had "roof" is ACV, a whole home event such as an electrical fire -- many plans would still cover it.  (Need to read the policy and ask).

2.  Different calculations on the insurance part.  Some use a complex formula including the sq.ft and the finish level, others just use tax roll assessed value as the starting point, then adjust.

3.  You could be right, IDK about kitchen example, so maybe?... the max coverage comes into play for partial damages... if you have damage to 30% of  your home, you only get 30% x maximum amount covered.   e.g., the basement floods or a tree falls through one side of the home, which is why a larger covered amount could be helpful, depending on terms. 

dogboyslim

  • Bristles
  • ***
  • Posts: 361
Re: Homeowner Insurance Questions - So Confused!!
« Reply #2 on: May 24, 2017, 02:02:46 PM »
1. Replacement Cost Value vs. Actual Cash Value - I understand the theory, one is what it would cost to replace the item, the other is the depreciated value. But what happens if for example we have a 20 year old roof and it gets hail damage? Is the ACV now 0, so it's basically not covered? Or if we have a kitchen fire that causes $10k in wall damages?
ACV is as you stated, the depreciated cost.  This is typically calculated as the replacement cost minus depreciation based upon age.  Even at 20 years, most roofs are not at the end of their useful lives, so you may be looking at 20-30% of the replacement cost.  Keep in mind that the determination of the value is the PRE-LOSS condition.  So if you have a kitchen fire that causes $10k in wall damage, you are likely to see something close to $10k.  As the other poster said, read your policy.  Many policies are RC for the dwelling and contents, but ACV for the roof.  There are several options.  If you have an older home, there is also a functional repair cost.  The best example of this is the use of drywall to repair the wall rather than plaster.  So if you have a historic home and want all repairs done to the original standard of the home, make sure you have a settlement value that is based upon the original construction type.

2. Four different insurance companies gave us four different replacement cost values for Dwelling Coverage, $100k difference between the lowest and the highest. What gives?
Exactly what the other poster said.  There are many industry tools used to evaluate this value.  What you need to know is that YOU are the one who determines this number.  The value the insurance company gives you is their suggestion.  Your mortgage company may have an opinion too.  This amount needs to cover the removal of the damage, and the building materials and labor necessary to replace your home. (assuming you have a replacement cost policy).  Do not use the tax rolls for this, and remember that insurance doesn't cover land itself.  When this limit will come in to play is at the time of a loss.  The insurance company will estimate the value of the home and compare your limit to that value (they call it Insurance to Value).  If your insurance limit is less than 80% of the value of the home, you may be subject to a coinsurance penalty.

3. We have an option to enter a lower dwelling coverage than their system estimates, for example $200k instead of $300k. But then we would be "66% covered". Does that mean if we have a repair that's less than the full amount, like the $10k kitchen fire above, we'd only get 66% of the value, or does the value represent the overall cap for total loss?
Your policy has separate coverages, each with a limit.  To make things easier, most companies will base the contents coverage limit on the Structure limit.  So if you have a $500,000 dwelling replacement cost (the insurance company calls this the Amount of Insurance, or AOI), there is automatic coverage of some percentage of that limit, typically in the 50-80% range.  So say your policy automatically covers you for 80%, your dwelling limit is now $400,000 (500k*.8).  If you know that you could replace all your home's contents for $200,000 (don't forget to check what is considered contents...appliances that aren't built into the home are often considered contents) you have the option to select a contents limit lower than the typical amount, usually for a reduction in premium.  You are still covered for the full replacement cost of your items if they are damaged due to a covered peril, but only up to the maximum limit.  So in your example, say your kitchen fire destroyed your $10k dining set, and it cost $12k to replace it.  You would get 12k of coverage, assuming a replacement cost settlement provision.