Under your homeowners policy, there are several different methods by which your insurance company may calculate the amount it will pay you for a loss. Of the possible calculation methods, receiving compensation for the replacement cost of an item is the most favorable for you. That’s because receiving replacement cost, by definition, gives you enough money to purchase a replacement for the damaged item, thereby making you whole again despite the earlier loss.
Another common standard for calculating compensation is actual cash value. Actual cash value is usually less than replacement cost. Typically, your policy will provide that you be compensated for losses involving personal property on an actual cash basis (unless you purchase a Personal Property Replacement Cost endorsement). In contrast, a loss involving your house and other buildings will typically be compensated on the basis of replacement cost, as long as you comply with your policy’s coinsurance clause.
To assist your insurance company in calculating the replacement cost of an item, it is very helpful to save the purchase receipt and take a photograph of the item as part of your household inventory.
Typically, you are not entitled to receive payment of the replacement or repair cost of an item until the actual replacement or repair is complete. Although in most states your insurance company must pay you within 60 days after you file your Notice of Loss (unless there’s a dispute), it typically need only pay you actual cash value while the process of replacement or repair is pending.
If you wish to ensure that your losses are calculated on the basis of replacement cost rather than actual cash value, read your policy and check with your insurance agent. There are certain requirements you need to meet before you are entitled to receive replacement cost for your house and possessions in all situations. If you have questions, contact the Experts at Henssler Financial: experts@henssler.com or 770-429-9166.
Disclosures
The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
