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Replacement Cost vs. Actual Cash Value

RC vs ACVYou’ve probably heard the terms “replacement cost” and “actual cash value” at some point when discussing your insurance with your agent. Chances are you probably heard a bunch of terms while reviewing your coverage and wondered what does it all mean?   For today we are going to focus on these terms and how they relate to your coverage.

Actual Cash Value or “ACV” as it’s known in the industry is exactly what it sounds like… what the item is worth right now.  Insurers look at the initial cost of the item and then subtract depreciation for the number of years you had the item.  The depreciation applied can vary depending on the quality of the item, its current condition, age,  and what the life expectancy of the item is.

Replacement Cost means the amount of money it would take to replace damaged item with a new one of comparable material and quality used for the same purpose.  When shopping for insurance this is the coverage you ideally want to look for.  This coverage will get you closest to the living situation you had prior to the covered loss occurring.

When you suffer a claim the adjuster is going to request that you provide them with a full list of details including:

  • Description of the item(s) with make and model where applicable
  • Purchase date
  • Purchase price
  • Current replacement value
  • Receipt if available
  • Photos if available

Realistically you probably don’t keep the receipt for every item you have in your home. Even if you do there is a chance those receipts may have been lost in the claim.   So what can you do?  Well, keeping a photo log of the rooms in your home is a good start.  It will help the adjuster understand what items were in your home, and it also will help jog your memory as well.  Mike from our office has been through a fire and he can vouch for how hard it is to remember everything you had after a total loss.   Our smartphone app offers our clients the ability to store these photos in our office as part of their file.  That way the photos won’t also be lost in the claim and will help to expedite the claims process.

If your settlement is on Replacement Cost basis you can expect to receive two cheques from the insurance company.   The first cheque will be for the Actual Cash Value of the items that were damaged.  After you provide your adjuster with receipts for the replacement items you will be issued a second cheque for the difference between the Actual Cash Value and Replacement Cost.  This ensures you get Replacement Cost value for the items you do replace and the Actual Cash Value for the items you choose not to replace.

Some items just can’t be replaced. If the item is deemed obsolete or by inherent nature cannot be replaced, you may only be offered an Actual Cash Value settlement.   If you own items that are unique, or one of a kind, we encourage you to reach out to your agent to discuss if there are any additional coverage options available to you for these items. Some of these items may be insurable on a special floater where the items value is agreed on in advance of a loss occurring.

Actual Cash Value and Replacement Cost coverage are also used on  auto insurance policies. Here is an example of how it works on an automobile policy:

12 months after purchasing a brand new car for $40,000 you get in an accident. The damage is beyond repair and the vehicle is written off.

With Replacement Cost Coverage: Some insurers offer optional replacement cost coverage or a waiver of depreciation on brand new cars. With one of these endorsements on your policy you’d be able to replace your vehicle with a new version of the same model (or comparable one) or you could receive a cheque for the amount you originally paid for it.

With Actual Cash Value Coverage: Without one of these endorsements the settlement would be based on actual cash value. The insurer would look at what the market value of a vehicle of like kind and quality, in the same condition as yours was immediately prior to the loss occurring.   In a case like this, your settlement would likely be around $30,000 instead of your original purchase price of $40,000.

So there you have it. If you still have questions, or are concerned about your own policy coverages, please contact us.

 

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Insurance

Deductibles…

Why

What is a deductible?

Deductibles are one of the most misunderstood parts of a car insurance policy. Basically the deductible is the portion you agree to absorb financially in the event of an accident. For example if your deductible is $500 and the repairs to your car cost $8,500, you will be responsible for paying the first $500 and the insurance company will pay the remaining $8,000 to repair your  vehicle.

So how do I choose a deductible amount?

There are many deductible options available. Which one is right for you will depend on your own unique situation.  Typically the higher the deductible the lower your insurance premiums will be.  Here are a few examples of when a higher deductible may benefit you:

  • If you own a high value vehicle a higher deductible will help to keep premiums low.
  • If you recently added a newly licensed driver to your policy.
  • If you have traffic convictions. In some cases your policy may be surcharged depending on the number and type of traffic convictions.   A higher deductible can help to offset some of the surcharge.
  • If you have prior at fault claims. Your driving record may have been impacted by recent at fault losses on your policy. Moving up to a higher deductible can help offset some of the premium increase you may have experienced.

To help determine what deductible is right for you talk to one of our agents. We can walk you through the pros and cons of each deductible option and provide you with cost estimates on each to help you make the right choice for you and your family.

Why do I have to pay my deductible if the claim wasn’t my fault?

The important thing to remember here is that a deductible is always paid. Usually the deductible will be paid by the party responsible for causing the accident.  (If you caused the accident you will pay your deductible.  If the other driver caused the accident, their insurance will pay your deductible).  However, there are instances where you may be told you have to pay your deductible, even though the claim wasn’t your fault:

  • If the responsible driver fled the scene and we don’t know who to go after.
  • If the responsible driver has no insurance.
  • If the claim is a complex multi vehicle accident. Determining who is responsible for what can be a time consuming process. In these cases it may take the insurance claims adjusters months to properly determine fault.
  • If the drivers involved offer different accounts of events leading up to the accident.

Generally speaking the deductible will be reimbursed to you at a later date once fault has been finalized by the claims adjusters.

One of the best things you can do to help protect yourself from having to pay your own deductible in a claim that wasn’t your fault is to sell your car and take the bus to install a dash camera in your vehicle.  Dash cameras don’t lie.  They can provide valuable information about the accident and help prove which driver’s statement is correct.  They are inexpensive, easy to install, and can prove extremely valuable to both the insurance company and police in the event of a claim.

Remember, if you do ever suffer a claim, you have us on your side. We work for you, not the insurance company.  You can lean on us for advice and help in dealing with your claims process.