One thing we are often asked by clients is to explain the difference between replacement cost coverage and actual cash value coverage. Both of these terms describe types of insurance coverage that are intended to provide coverage for your damaged or stolen property. However, the amount of money you receive will be largely dependent upon which type of insurance coverage you have.
What is Replacement Cost Coverage?
Replacement cost coverage is insurance coverage that will pay you in today’s dollars for the value of the item that is damaged or stolen. For example, assume your home is broken into and your flat screen television was stolen. The replacement cost coverage will reimburse you for the entire cost of replacing the television with a new one that is approximately the same brand and style.
What is Actual Cash Value Coverage?
Actual cash value coverage is insurance coverage that will reimburse you for the replacement cost of the item that is damaged or stolen (like the television), minus any depreciation. This type of coverage is less valuable than replacement cost coverage. It will basically pay you the market value you could have sold the item for had it not been stolen or damaged, rather than the amount it will take to replace it.
Which Type of Coverage is Better?
As you have probably already guessed, replacement cost coverage will come with a higher premium than actual cash value coverage. For items covered by replacement cost coverage, the insurer will usually hold a certain amount of the payment from you until you actually go out and replace the property.
What if the Property is Damaged, Not Stolen?
It is a little more complicated for damaged items than for stolen items. If you have replacement cost coverage and want to repair something that was damaged, in many cases the insurance company will pay for the actual cost value of the repair, after you submit a receipt for the costs incurred for the total repairs.
Florida’s legislature amended the statute that deals with replacement cost coverage to codify this practice. Under the amended law, if there is a partial dwelling loss, the insurer must initially pay at least the actual cash value of the claim after the deductible. Whatever remaining amount might be owed on the claim (the difference between what was initially paid and the replacement cost), is paid periodically by the insurer as the repair work is done and the costs are incurred.
Florida law does not allow insurance companies to deduct depreciation from the final replacement cost payment. An insurance company is allowed to withhold payment until the expense is actually incurred, but cannot then deduct depreciation if you purchased replacement cost coverage.
If you are having an issue regarding actual cash value or replacement cost insurance coverage, call our Fort Lauderdale property damage attorneys at (954) 767-6333 or use our convenient online contact form. We look forward to helping you with your insurance claim.