When your home has been severely damaged by an extreme weather event, one of the first things you need to do is to file for an insurance claim. Keep in mind that insurers usually set a deadline on the submission of claims, so you should work on yours as soon as possible. Your insurance provider may determine how much they will cover for your loss through several methods. Two of the most common options are actual cash value (ACV) and replacement cost value (RCV).
A building restoration expert explains the difference between an ACV and RCV homeowners insurance policy when it comes to storm damage.
Actual Cash Value
What an actual cash value means is not always easy to explain. Some courts refer to it as fair market value or the amount a buyer would give a seller if both parties are not under time restrictions. However, courts usually go by the industry’s traditional definition, which is the cost to replace a damaged or lost item with a new one of the same kind.
In a homeowner’s insurance policy, providers base the actual insurance cash value on the market value or your home’s initial cost, and they consider personal properties with depreciation as well. Standard homeowners insurance policies usually cover the replacement cost of your home’s physical structure and the insured personal property’s actual cash value. This type of insurance coverage is typically not as expensive as other options because depreciation is considered, and claim payments are lower. It may be useful in case your home has suffered water or fire damage.
Replacement Cost
Replacement cost pertains to the cost to replace the property with something of similar material and quality for the same purpose. Unless the limit of your insurance or the cost spent to repair or replace the damaged property is less, this policy applies. You can review your policy for the precise meaning and explanation of replacement cost.
In some cases, replacement cost value refers to the amount of money needed to replace a damaged or destroyed home with the exact or similar value of the affected property. Your home insurance policy and endorsement may also cover the cost of replacing personal property that has been affected by fire or water damage. Experts usually recommend this option because it brings homeowners closest to their living situation before the covered peril happened.
Keep in mind that replacement cost covers the value of the house or items but not the land where it is built. It’s best to consult your contractor or get an appraiser to determine your home’s replacement cost. These professionals would know how to determine how much the building materials would cost as well as any upgrades in features or additional living space. After this, they’ll come up with your home’s fundamental value.
For instance, you bought a house for $400,000, including the cost of the lot it was built on and the cost of building the structure. If the price of the lot is $70,000, you need to insure the cost of the house, which would be $330,000, assuming there’s no market appreciation in the $400,000 amount. In some cases, the cost is paid in two installments. The initial amount would be paid by the insurer, which could either be the actual cash value or half of the replacement cost. After the repairs are accomplished, you can then submit documentation to your insurer, and they would pay the remaining amount.
What Does Homeowners Insurance Usually Cover?
Your Home’s Structure
This part of your homeowners insurance policy usually covers the cost to address physical damage to your home. It can include water or fire damage to the roof, walls, floor, or doors. Even hidden parts of the house, such as foundations, may also be covered.
Liability Coverage
With liability coverage, you’ll stay protected against lawsuits for injuries or property damage. It will cover the court costs and any awards you need to pay in the court, up to the limit of your policy. You can use this coverage, no matter where you are in the country or world.
Personal Belongings
Your homeowners insurance may cover the cost of replacing or repairing your belongings as well should they be lost or affected by fire or water damage. These belongings may include valuables, such as cash, firearms or jewelry. For instance, if you’re cellphone is insured, and it gets lost while you’re away, you’ll receive a reimbursement. It may also cover the belongings of other occupants in your home and the belongings of guests while the policyholder is present.
It’s essential to document valuable items that you own to make the most of your homeowners insurance. Many times, homeowners were unable to remember all of their belongings during a partial or complete loss. To avoid this situation, it would help to create an inventory of your belongings, which you could use when filing a claim due to loss or damage caused by a peril. Your inventory should include photos or videos of the times and receipts or proof of purchase. You can easily document your belongings with the use of your smart device.
Additional Living Expenses
If your home has been hit by an extreme weather event and is inhabitable, your insurer may cover the cost of your additional living expenses. It may cover things such as hotel bills, meals and other expenses. For instance, if your roof has been significantly damaged during a storm, you’ll likely need to find another place to stay while the affected parts of the house are being repaired. Your insurance provider may pay for your living expenses, including restaurant meals and the cost to wash your clothes if you don’t have access to a washer.
Whether you need a roof repair or replacement, you can turn to Anderson Restoration LLC. We are one of the area’s leading providers of building restoration services. Give us a call at (281) 376-7474 (Houston/Cypress), (817) 226-2111 (Grapevine) or (512) 400-3021 (Austin).
