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Actual Cash vs. Replacement Cost Value: What You Should Know



Following a covered loss, many insurance policyholders wonder how much the insurance company will pay for damages. Insurance companies pay out on property insurance claims in one of two ways: actual cash value or replacement cost value. Both of these policy options can significantly impact the outcome when it comes time to file a claim in Florida.


In this article, a Miami property damage claims attorney addresses actual cash and replacement cost values, how they affect your premium, and where to turn for legal help if you are not getting the settlement you believe you deserve.


What Is Actual Cash Value?


Actual cash value property insurance policies pay policyholders the replacement cost value less depreciation. For example, let’s say that your home office was destroyed by roof damage, and you lose electronic equipment for which you paid $5,000 one year ago, with depreciation occurring over five years. Your equipment is now worth $4,000, which the insurance company would pay if you have an actual cash value policy.


Related Article: Common Property Damage Claims In Florida


What Is Replacement Cost Value?


Replacement cost value is more straightforward than actual cash value per FL Stat. § 627.7011. If your insurance policy specifies that covered losses will be compensated at their replacement cost value, your provider will cover the costs of replacing your old item with a comparable one.


Specific provisions for replacement cost value impose a cap on payouts equal to 100 percent of the original purchase price. This creates complications for certain insured items and properties. In those instances, policy enhancements ensure that you receive a fair payout in the event of a covered loss.


How Do Insurance Companies Pay Out on Actual Cash and Replacement Cost Values?


It is critical to remember that the damaged property must be replaced or repaired; otherwise, the insurer is under no obligation to provide the additional replacement cost reimbursement under the policy. If the policyholder fails to repair or replace the damaged property, the insurer is only obligated to pay the loss’s actual cash value.


Similarly, if the policyholder completes the repairs in full for less than the initial actual cash value, the policyholder cannot seek additional Replacement Cost Value funds.


How Do These Valuations Affect Your Homeowners’ Insurance Premium?


The replacement cost value provision results in high insurance payments, requiring you to pay a higher premium. By contrast, actual cash value produces lower settlement amounts since you spent less on your premium. There are tradeoffs to both options.


You should carefully review the terms of your policy as the way your insurance pays out claims may affect you significantly.


Related Article: How To Preserve Your Water Damage Claim


Get Legal Help From a Miami Property Damage Lawyer


Insurance policies may seem impenetrable. Providers write policies in this manner on purpose as a cost-minimizing strategy. It is still critical to speak with an experienced Miami property damage attorney to fight for the benefits the insurance company owes you under your policy.


The Innocent Law Firm aggressively represents homeowners’ insurance policyholders when their insurer does not keep their promise.


Call our Miami-based law firm today for a Free Consultation at 954-903-1737 or message us here. We will not get paid for our legal services until you win your damage claim.


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