Homeowner's Insurance - Actual Cash Value Versus Replacement Cost

[spiderman]

I am getting different answers and different recommendations from various insurance agents about what type of coverage to carry on single family investment properties - ACV versus replacement cost.

I have a couple of old rental houses in Montrose, plus one in Lindale Park.

Here is where I am in my understandign (or lack thereof) of some basic scenarios

Simple case

[BryanS]

Here is what I found:

http://www.eqgroup.com/ACV_explained.htm

What Does "Replacement Cost" Mean?

The term "replacement cost" is defined or explained in the policy. Simply stated, it means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. This applies unless the limit of insurance or the cost actually spent to repair or replace the damaged property is less. Refer to your policy for the exact definition and explanation of replacement cost.

What is "Actual Cash Value"?

The term "actual cash value" is not as easily defined. Some courts have interpreted the term to mean "fair market value," which is the amount a buyer would pay a seller if neither were under undue time constraints. Most courts, however, have upheld the insurance industry's traditional definition: the cost to replace with new property of like kind and quality, less depreciation. Courts have varied in their rulings as to whether or not depreciation includes obsolescence (loss of usefulness as a result of outmoded design, construction, etc.).

So What's the Difference?

The only difference between replacement cost and actual cash value is a deduction for depreciation. However, both are based on the cost today to replace the damaged property with new property.

You want ACV on an investment property, and a good amount of liability coverage. Search for Texas Dwelling Policy -1, -2, -3, -4... (TDP-2, TDP-3, etc). Basically, you should be after a fire policy + liability. If you call your insurance company, they may be able to write an ACV/Fire policy on your investment property and then extend liability coverage to that property off of your primary residence policy, which should be a replacement cost type of policy...

[meow]

I have one question. i don't expect to have anyone tell me what to do here. It is all on me. I just don't know what to do. I have time to decide on it as my renewal is not until Feb.

My insurance has gone up about $30 a year and last year jumped about $100. My house has ACV coverage for $814 a year now yet my agent has another lower price rate with one of their alternate insurance companies that offers a lower rate of $756 with replacement coverage on the roof. If I go with the lower rate I will be barred from going back to the one that is now $814 year. If I take the $756 newer rate policy, it could go up even higher in the next few years than if I opted to keep the current $814 policy intact. My roof is in the early stages of life so it's not a major concern now. I have a $1,000 deductible. Would I be better off to keep the old $814 policy and hope that it doesn't go up much and put the premium difference in a savings account for future roof repair? Either way I go, keeping the $814 versus going with the newer lower $756 policy, both will continue to go up over the years. It is just no one knows how much and which one will ultimately be the cheaper down the road. Do I gamble and keep the older policy or go with the newer cheaper policy which may ultimately be more expensive down the road? My house payment would go down if I go with the lower rate yet it will just go back up again when the HO insurances continues to rise yearly.

Pros or Cons anyone. If not, that's fine and I'll just wing it on my own.

-gc

http://www.eqgroup.com/ACV_explained.htm

What Does "Replacement Cost" Mean?

The term "replacement cost" is defined or explained in the policy. Simply stated, it means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. This applies unless the limit of insurance or the cost actually spent to repair or replace the damaged property is less. Refer to your policy for the exact definition and explanation of replacement cost.

What is "Actual Cash Value"?

The term "actual cash value" is not as easily defined. Some courts have interpreted the term to mean "fair market value," which is the amount a buyer would pay a seller if neither were under undue time constraints. Most courts, however, have upheld the insurance industry's traditional definition: the cost to replace with new property of like kind and quality, less depreciation. Courts have varied in their rulings as to whether or not depreciation includes obsolescence (loss of usefulness as a result of outmoded design, construction, etc.).

So What's the Difference?

The only difference between replacement cost and actual cash value is a deduction for depreciation. However, both are based on the cost today to replace the damaged property with new property.

You want ACV on an investment property, and a good amount of liability coverage. Search for Texas Dwelling Policy -1, -2, -3, -4... (TDP-2, TDP-3, etc). Basically, you should be after a fire policy + liability. If you call your insurance company, they may be able to write an ACV/Fire policy on your investment property and then extend liability coverage to that property off of your primary residence policy, which should be a replacement cost type of policy...

[RedScare]

If you are satisfied with the company you have now, don't change companies over $58 a year. You know your current company. You don't know the new one. Do you want to gamble over 58 bucks? Plus, it is common to quote a low initial rate to get the business, then raise it in a year or two. Over 3 or 4 years, you could actually be losing money.

There is much more to insurance than just the price. Make sure the 58 bucks is worth it.