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Replacement Cost, Actual Value Coverage, and Fire Damage Claims

On Behalf of | Nov 29, 2017 | Fires

Losing property or having it damaged in a home fire in the Tampa Bay area can be a devastating experience. While homeowners can obtain compensation for losses by filing an insurance claim and following the proper steps, the amount of money that the insurance company provides does not always correspond to the value of what you’ve lost.

Generally speaking, there are two different reasons that you might not receive the exact value of your damaged property. First, you may have lost items with sentimental value for which a fair market value simply does not equate with the value you attributed to the items (such as family photographs, or other family heirlooms with little market value). When it comes to insurance claims and fair compensation for those personal items, there is not much that can be done about the valuation of personal property with sentimental value since insurers do not compensate their insured for subjective, sentimental value of personal property. But there is another type of situation in which fire damage claims might not provide the value that you think you deserve. In short, there is a difference between replacement cost and actual cash value.

What is the Difference Between Replacement Cost and Actual Cash Value?

If your homeowners’ insurance covers the property inside your house-the contents of your home, then you need to be able to distinguish between replacement value and actual cash value. As an article in BankRate explains, there is a vital difference. Indeed, the distinction could result in thousands of dollars of difference in compensation after a loss. So what is replacement cost and what is actual cash value?

Replacement cost is the price of what it would actually cost “to repair or replace your damaged possessions at today’s prices without deducting for depreciation.” In other words, if your homeowners’ insurance policy provides for replacement value, then you will be compensated for the amount it will cost to replace the items you have lost with like kind and quality. Think of it as getting new for old. This is different from the amount paid by an insurer when a policy provides for actual cash value.

Unlike replacement value, actual cash value means that “the insurance company deducts depreciation from your personal property’s overall value before arriving at a figure.” To give an example, imagine that you had a closet full of clothing that was all destroyed in a fire. Many of the items were purchased years ago, and you wore them relatively often. Every item of personal property has been assigned a predetermined usable lifetime. If you were to resell the clothes (assuming they had not been destroyed by the fire), you would not be able to recoup the same amount that you originally paid for the clothes. Their value depreciated over the course of their lifetime. If your insurance policy only covers the actual cash value of your personal property loss, you would get the cost of the clothes minus the depreciation, which likely would not be enough to replace them.

How Do I Know If My Policy Provides Actual Cash Value or Replacement Cost?

You have to read the policy language. As the article explains, many homeowners’ insurance policies default to actual cash value coverage for the contents of the home, but the damage to the structure is paid at replacement cost value. Typically, “unless your policy specifically states otherwise, your home’s contents usually are covered only for actual cash value.”

If you only have actual cash value coverage for your contents, can it be changed to provide replacement cost coverage? Most insurance companies that offer homeowners’ policies offer the option for you to pay to upgrade your coverage to include replacement cost coverage for the contents. Depending upon whether you want replacement cost coverage for your personal property in your homeowners’ insurance policy or your renters’ insurance policy, it could cost you an additional 10 to 20 percent each year.

Seek Advice from a Tampa Fire Damage Attorney

Do you have questions or concerns about filing a fire damage claim? A Tampa fire damage lawyer can help. Contact the Valrico Law Group today.