Replacement Cost Coverage vs. Actual Cash Value
When the unexpected happens and your home or business property is damaged, people expect that their insurance company will honor their policy and will fully compensate them for the costs of recovery. Unfortunately, you may find that your insurance company is unwilling to honor your claim, or may appraise the value at much lower than you think is fair. When this happens, do not despair. An experienced wildfire insurance claim lawyer may be able to help you fight for the financial assistance you need.
Many people are unfamiliar with common insurance terms, so in order to help you better understand what you may be dealing with, the Central Texas wildfire claim attorneys of Williams Kherkher would like to explain some important terms and concepts. Clarifying the difference between replacement costs and actual cash value is one of the best places to start.
Replacement costs are the expenses a policyholder would pay to have their home repaired, which is often based on the cost of the construction itself. Replacement costs do not reflect the current “market value” of your home, and they do not include the land surrounding your home. Individual policies and coverage can vary greatly, so be sure to consult your insurance policy and contact an experienced attorney with any questions you may have.
Insurance companies usually use industry-specific software programs to estimate the cost of building, and we have found that their estimates of replacement costs are frequently lower than the actual cost of construction. Whether the programs underestimate the cost of labor or the materials needed, policyholders may not receive the full amount they are owed if they do not have their own appraisal performed.
Actual Cash Value
A property’s “actual cash value” reflects the replacement costs with depreciation factored in. In Texas, HO-B and HO-C insurance policies cover the cost of replacement for any dwelling, while HO-A policies cover actual cash value.
Insurance companies will typically provide actual cash value for most property, unless the policyholder has purchased an endorsement to cover the full cost of replacement. This means that expensive personal property like jewelry, electronic devices, and other high-dollar items may be appraised at the actual cash value (which is often less than the replacement cost).
Homeowners whose policies only cover actual cash value may find that their insurance company may be unwilling to pay the full cost for damage to their home, but will only agree to pay the depreciated “current value” of the home. The appraisers for the insurance company will inform the policyholder of the replacement costs and the amount of depreciation, which is often much lower than what the homeowner or business owner may believe the property is worth.
Because the insurance rates in Texas are among the highest in the United States, many homeowners purchased the least expensive policy they could afford, which is often the HO-A policy. Because this type of policy may leave room for the appraiser to make judgment calls based on depreciation, it is wise to have an experienced attorney on your side to make sure you get a fair decision on your claim.
The wildfire insurance claims attorneys of Williams Kherkher are prepared to help you with any insurance questions or concerns you have pertaining to the Bastrop wildfires. If you are dealing with an insurance company that is refusing to pay out or complicating your claim, contact our offices at 800-639-8460.