Snow Storms and How to Get More From a Property Claim

January 26, 2016

replacement cost and actual cash value insuranceThe record snowfall last weekend in New York City, Washington, D.C., and so many cities and towns on the East Coast will be keeping insurance agents and companies plenty busy. Though we got lucky this time with the storm completely missing us here in the Utica area, we hate to say it, but there’s still plenty of winter left.

So here’s a claim scenario that will help us explain how you can get more on your homeowners policy.

It’s not impossible to imagine that a large chunk of ice builds up under the edges of your roof. Then, there’s a thaw. The ice becomes unstable and crashes down onto your front porch below. This isn’t just an icicle, but a heavy, foot thick column of ice. And the porch is the size of the whole front of your house. The massive chunk of ice heavily damages the porch so that the roof needs to be completely replaced.

Replacement Cost vs Actual Cash Value

Did you know that there are two ways your insurance claims adjustor can settle your loss, depending on your policy? That’s right, he or she will either calculate the Actual Cash Value (ACV) of the loss or the Replacement Cost (RC).

Here’s how it works:

The cost to replace the roof might be $2,000. The adjustors determine that it has a normal life of 15 years. Your roof is 10 years old. The adjustor will then determine the Actual Cash Value of the roof, or $2,000 (replacement cost) minus 10 years depreciation at $133 per year ($2,000 divided by 15 years = $133), for a total of $1,333 of depreciation.

This claim would be settled for $667. That’s $2,000 (replacement cost) – $1,333 (depreciation) = $667. If the insurance adjustors calculated the claim on a Replacement Cost basis, the amount of the settlement would be the full $2,000. Both claims would be paid minus your deductible.

What Should I Watch Out For When it Comes to Valuation?

As you can see, the ACV settlement is less than the RC settlement. The basic idea here is that as property is used over time, it is worth less. It depreciates. So an insurance policy written on an Actual Cash Value basis will pay only for the decreased value of property after it takes into account age, obsolescence, wear, and tear.

The above example would be settled in the same way on a Commercial Property insurance policy. Whether you are insuring your home or business property, Replacement Cost is the best way to avoid a depreciated loss settlement.

The thing about replacement cost is that you must be sure you have enough insurance on your property to cover the larger claim payment. One of the advantages of an Actual Cash Value policy is that, since your claim will be lower, you can maintain lower amounts of insurance. If this is acceptable to you, then ACV might be a good way to insure your property.

But if you are looking for a full replacement cost settlement, talk to us about it for your building and, if possible, on your contents. Then, be sure you have enough insurance to cover the additional cost of replacing property at today’s prices.

So let’s hope our Central New York winter remains easy on us this year, but just in case, we want you to get more from your property claim if anything happens.

Until next time,
Your SZW Team

Scalzo, Zogby & Wittig, Inc. is your New Hartford area independent insurance agent. Call us for a quote on insurance for your home, car, business, or life at 315.792.0000. Or request a quote here.