Replacement vs Actual Cash Value...WHAT?!?!

[Taylors6]

I don't consider myself a brillant person- but I am certainly not a totally dummy either....but talking to insurance agents has my head aching!!

We are getting quotes from some other companies and one just called and said they think by our price we have a Actual Cash Value policy- they said those are more expensive. The said one company came back with a replacement policy- for the amount we are covered now- for less than half the price. I am thinking WOOOO HOOO! But then she tells me that she doesn't think we can insure for that amount because its only $109000, and she thinks the replacement for our size home w/ basement etc. would be more like $200,000. OK.... then she says that if our house burns down she thinks we would not get the $109000 anyways because they will say we under insured..... I don't get it.

By the way- we live in a very low cost area in IL- hardly any houses over $200,000 around here unless its in the newest subdivision. We have a very old house- bought for next to nothing and fixed it all up- now appraises at about 5 times what we paid for it. But believe me...it was a dump! Its big though so for now its nice to have the space but if we were to buy or replace our home we would not go with what we have (2 story- basement, etc.) we would do a smaller ranch style on a slab. The space is fine for now but we could lose a couple rooms and not even be bothered!

So what kind of policies do most people carry- lets just say that we wanted to have $125,000 to go buy another home or put towards rebuilding something right on this lot. What would that be- cash value? Replacement? I would love to save some money in the process- but I don't even know what the heck I would be buying!!

Help! (and thanks in advance)

 

[disneystacy]

We just switched insurance companies and they sent a adjuster to my house who figured out replacement cost for building my exact home. The land is not considered in this figure, just how much to rebuild. Our insurance premium was based on that amount. We use Amica insurance.

 

[missysid]

Hi there. I also live in IL and work for a leading insurance carrier (I have been licensed for 11 years) so I will try to answer your questions the best way I can.

Yes there are 2 types of home policies offered ACV and RPL Cost. ACV is designed for older homes - mostly 30 years or older. The reason this type is offered on older homes is the woodwork and craftsmanship is different from today. To rebuild a home with the construction back then would cost a fortune in todays market if you could even find someone to do it. ACV is not always a bad thing. For instance if you have a home 50 years old and you paid 75,000 for it. Your agent should ask you questions such as square footage, type of foundation (basement, crawl, or slab), exterior construcion, year built, number of bathrooms, if basement is finished, etc. Based on that information they will run what we call a rebuilder cost figure. Normally (using round figure here) a house you paid $75K for might come in at $125K to rebuild. You can pay for the higher amount of insurance at $125 but most will recommend at least 80% or in this case $100K. Yes it is more than you paid for the home. The home you purchased is older and has depreciation. The cost eval is for the figure expected to rebuild. While $100K would not rebuild the home entirely it would cover most of the cost thus being called ACV. They would only pay up to the $100K it was insured for.

Replacement cost is similiar - they figure the rebuild cost and require you insure the home for 100% of that cost. So again lets say you purchased a newer home (29 years or younger) and you paid $150K. The cost eval comes back at $199K. They would require the full $199K to insure the policy with replacement. Our company offers this option and offers FULL replacement with this type of policy. It is the agents job to get the rebuilder figure as close to possible using the program designed by our company. If there were a total house fire for instance and at that time the cost to rebuild was $215K our company would pay $215K even though you only had the home insured for $199K. That is what replacement cost means.

As far as the RPLCOST goes you have the option to simply not rebuild in your current location if you choose to move or buy another house. In that case the policy wording reads you will be paid on ACV of your home at the time of the loss. You would be better off to rebuild and sell the home you have instead of taking the ACV settlement. If you choose to rebuild at your current location and want to go with a one story that should not be a problem as long as the house does not increase in sq footage. The simple rule of thumb is Like or similar condition. Meaning you can not go bigger or expect the best of the best in the entire home (granite counter tops) unless you had them before which your agent should have included in the rebuilder clause.

If you have a claim you will be happier with the replacement cost policy vrs the ACV. Even if it is a small claim like roof damage. Also most carriers offer the replacement cost coverage for the life of the policy. So if you own the home for 60 years you keep the coverage.

I realize that was a lot of insurance wording and really long - let me know if you have an other questions and I will do my best to help answer them. Also word of warning there are carriers out there right now offering a lower premium to get business in IL. Check with the Department of Insurance to see how many complaints they have filed against them. Cheaper insurance is great --- but not if you have a hard time getting you claim paid or the have major issues with billing and payments. Let me know if you need their toll free number and I have their website address too.

Good luck and hang in there. Most agents will be happy to go over all of the policy ins and outs with you. And if they are not -- keep looking.

Mel

 

[Taylors6]

Thanks for the replies!

I think I have a little better understanding now- I wnet and read thru somethings on the internet too.

This has got me stumped though- which type of policy is more expensive usually. Unless I misunderstood the lady I talked to - and my mom is covered thru their company for years so I don't have reason to think they are crooks- yet.... (lol) I thought she said she thinks we currently have a ACV policy and that when they run those they tend to see them cost more in premiums. Does that make sense? She was talking to me all about the replacement cost as if thats better to have- and the company she said returned the quote was much lower. But thats when she said that the amount we are covered at is not nearly enough and she thinks they would want more like $200,000.

Concerning replacement cost- lets say that we have a total loss- and own another piece of land. Can we have the house rebuilt on that lot or do we have to use the same one we have here?

Another silly question- I think I know the answer here- so if we have a total loss- and say the replacement policy is $200,000. If we owe 30,000 to our mortgage- would they pay that off and then we have $170,000 to work with??

Oh and one more thing- what about personal property- its important to us that we be able to replace the things we have. I am a budget shopper! So we own things that I paid quite a bit less for than the cost to buy them again- especially if I had to have them right away and couldn't wait for a deal! So what is best to make sure that if I have a TV that costs 1500 to go to Walmart and buy- I have had it for 3 years- got a great deal on it- but it currently would cost me $1500 to replace a like model- what kind of policy should I have to be able to get covered so I can walk in to Walmart and replace my TV straight out. With the size of our family- if I had to replace alot of stuff and pay 20 or 30% of it then that would be really difficult and I think I would end up having to by lesser quality items then we have- so I worry about that.

Thanks again!

 

[missysid]

As for building on another location. Our company will allow the location change only if the cost of rebuilding is the same. For instance living in a small town would be cheaper to rebuild in vrs say Chicago. If the cost is close they will allow it.

The mort. question depends on the company and the bank. In most cases the insurance carrier would pay out the full $200K in both your name and the banks name. You take the check to your bank and they endorse the back with you. They take their money first if they want and you deposit the rest in your account. However if you are rebuilding talk to your loan officer. Explain you are ok with keep the mortgage and will rebuild. They will then allow you to keep the full $200K and will hold the mortgage on the new house. Some paperwork may be required and they may place a hold on the $30K in your account until the paperwork is done since they need to cover their loans.


Always Always Always get replacement cost on your contents. It is offered on both ACV and Replacment cost policies. The ACV and RPL we have been discussing above only applies to the house structure. You can choose to take rpl on your contents and should! It prevents depreciation on items and allows you to replace the item at todays cost. Most policies come standard with a % of the home structure coverage. For instance with us - You insure the home for $100K you will get $75K standard for contents included in the policy. You can purchase extra contents coverage as well. Lets say you bought a TV on a garage sale 3 years ago. You paid $75. It was a RCA 36" tv. You would be sent to say Best Buy to purchase a new RCA 36" tv at todays cost with replacement. If you have ACV on your contents you have to tell them what you paid for the item ($75) and they depreciate it out for the 3 years you have owned it- another words they give you say $50 for your tv. Bad deal for you! Rpl cost on contents is cheap to add to a policy. Maybe $30 a year. We never write a policy without it. It prevents the adjusters from having to deal with upset clients and makes the clients happier in the long run.

If you have a fire you dont want to have to wait to replace your items until garage sale season or you find it on sale. I am a value shopper myself and we bought a used fridge when we first got married. The fridge was struck by lightening and our company wrote me a check for the cost of a new one. The brand we had was no longer available so we were able to get another brand with about the same cubic feet. We also switched from a side by side to you top bottom model without problems.
Oh forgot to answer the first question as to which was cheaper ACV or Rpl cost on the home structure. It really depends on the company, location, and amount of insurance. You would need to price it both ways.

 

[runwad]

Wow I'm glad you asked this. My agent is in the process of re-shopping my policy because it's went up so much. Missysid can you explain "loss of use" to me and what I need to be sure to get as far as that's concerned.

 

[missysid]

Loss of use is another "standard/included" coverage in just about every policy. It is based on a % just like contents above. Ours is 20% of what the home is insured for. Loss of use means if your home is unlivable because of a covered claim they will pay for rent or hotel fees while the home is unlivable. It is a good coverage and comes standard with most policies. You should make sure you have it listed. This is very important for large claims such as fires.

 

[pixiewings71]

We had a fire about 3 years ago. Lost basically everything. Saved some items from the garage and some photos that were fire damaged but still had sentimental value, saved some clothes from the master closet and some nice glassware that was put up high and the only damage was to the boxes. We just tossed the boxes and kept the glasses. Anyway, you want replacement value. And you want a good policy that will cover your "loss of use" as well. Ours paid for our rental home and rental furniture for 6 months, would have paid longer but we wanted to go HOME! lol Also make sure your policy covers all updated code rebuilds, for example our home was 20 plus years old, the policy stated all code upgrades were covered so we got upgraded insulation, fire alarms in every room of the house and a few other upgrades as well. As for replacement coverage for personal belongings, it works like this. You have a fire, your stuff is ruined, either you or an outside company (we paid someone else to do this for us) takes an inventory of every last item in your home. They assign a value (or you research the value) and you indicate how old the item was. We got a huge list from our company and I went thru and put ages next to every single line item on the list and sent it back to the inventory company. The inventory company sent it to our ins. company with assigned current values and then we received a copy of that list and a check from the ins. company. At that point it was up to us to determine what we wanted to replace, go shopping, pay for it, submit receipts for the replaced items showing what you spent to replace them and then the insurance will send you another check when your case is closed. So, when we did our replacements we did not get repaid until our case was closed by the ins. company. In all it took us a year and a half to get reimbursed for everything. I hope that helps, I hope it wasn't too jumbled....let me know if you have more questions.

 

[Taylors6]

Thanks Missy (funny...thats my name too!)

I was going to reply in a private message- but then I thought maybe someone else would learn something from this and help them save a dollar so what the heck!

So does credit make a really big impact.... and what kind of credit are we talking about with insurance. My DH is asking around today and we are finding that we are paying almost double what alot of people are saying and they are covered for more!! I don't know what to think. I know they run credit for insurance now- if you don't have stellar credit would it make your insurance double?? Don't get me wrong- we don't have bankruptcy or even deliquencies etc.. I mean we probably have average or better credit- we have never been turned down for any loans we have taken- cars, etc. but we don't end up with the super low or no percentage rates either! The only thing that probably gets us is having some credit card debt- but its never been paid late and always pays more than min and not tapped out or anything (has been years ago though). We were able to get a 10,000 signature loan about a year ago to purchase a used rv without an issue so I think we are not terrible or anything. I was just trying to figure out why our premium is close to $900 and alot of others are saying they pay like $500!

 

[runwad]

Loss of use is another "standard/included" coverage in just about every policy. It is based on a % just like contents above. Ours is 20% of what the home is insured for. Loss of use means if your home is unlivable because of a covered claim they will pay for rent or hotel fees while the home is unlivable. It is a good coverage and comes standard with most policies. You should make sure you have it listed. This is very important for large claims such as fires.

ok thanks, I guess I knew that I just wasn't sure if there was anything else to be aware of. I notice w/my more expensive policy that i"m reshopping my loss of use is 66k and on the one he gave me that is less it is only 44k for loss of use...everything else between the 2 policies is identical in amounts just wasn't sure how much Loss of use should be but looks like you said 20% of what your home is insured for which is on this new policy, don't know why it was more on the first one? Thanks for the info.

 

[missysid]

Credit scores are becoming more popular with insurance companies now. In our case - we dont see your credit report or a # like most people hear about. It is a scale from A to I with A1 being the best possible. The rates for A B and C are very good. lower than that and you will notice a rate surcharge. Normally about $200 more per year on average. Each policy is different but that is a rough est.

If you have good to standard credit you should be fine. They mainly look for late or no payment history. Not so much how much debt you have. Also medical invoices would not count on this scoring.

One thing to remember is each policy is underwritten differently with each carrier. So while your neighbor may have a similar house thier rate may be different than yours. Many things go into a rate. For instance - credit score, overall condition of the home, how long you are with your current carrier, number of different policies you carry with a company, discounts such as alarm codes, etc. Also each company offers a different rate. The one that is cheaper for new clients this year may not be cheaper for new clients next year. Companies pick different areas in a state to go after business and they will offer competitive rates to get into that market. The rates will remain on the policy over the years in most cases but may only be available to 6-12 months to attract new clients.

Ah another Missy on the Dis boards. Very nice to meet you. If you dont mind me asking where abouts in IL are you from? We are located just north of Springfield.

Happy to help answer everyones questions (you all have had some good ones)! The best time to question your insurance coverage is before a claim has been filed.

 

[missysid]

Also thought I would mention to those looking for information on Loss of Use --- There is no limit that applies to what can be spent each month. But once the coverage is used -- they will not pay anymore. You would be shocked to see how fast it can be spent. Just think about 2 hotel rooms for 3-4 weeks while you look for a house or apartment to rent.

 

[MrsPete]

...but talking to insurance agents has my head aching!!

I think they do that on purpose!

Seriously, think about it like this: I paid $135,000 for my house, which has no mortgage. If if were to be destroyed today, the cost of rebuilding it would be substantially higher -- probably about $200,000. I cannot go back and buy this house again in yesterday's dollars, so $200,000 is the cost to REPLACE the house TODAY.

 

[Taylors6]

We are probably not too far from you! We are just a little east of Champaign- Urbana- almost on the IL/IN state line.

I have gotten more calls between these two agencies today! I'm not complaining though- the last call the lady told me our vehicles came back with quotes that are over $300 less per 6 months!!! Woo! She said she was really shocked at the difference too! Would have been lower but my DH had a speeding ticket last year I told DH don't get too excited though- knowing my luck they'll call back and say....well we forgot this or that! I sure will be excited if we end up saving some money though!!

 

[missysid]

Yep we are not far away at all. About 90 minutes.

Wow that is a great savings on the auto insurance. Congrats! I am always excited when I can save clients $$ on their insurance. Silly I know but I like to think they appreciate it and I feel like I am doing my job. Also I know it seems like a long ways out but that ticket will be off his "insurance" record 3 years from the date he got it. Check back with them 30 days before that to see if they will lower your rates. Some companies will also forgive that ticket for new clients.

 

[pixiewings71]

Just a quick note about how much they charge you. Check with the company you have your car ins. with. We have our homeowners and car ins. thru the same company, we had a history with them so they were happy to have our business and we got a great policy at a great rate. We got multiple discounts for having more than 1 policy, good drivers, a good history with them etc etc. It might be worth checking into.

 

[Taylors6]

I'm still waiting for my full quote from the company I was talking with yesterday. One other company called me back and could not beat our current rates on any of the policies (3 cars, Rv or home).

So thats got me thinking about something that was said yesterday about companies trying to offer some really low rates in IL right now and to watch out for that...... Should I be concerned if this company can get us some good rates- does that probably mean I should expect them to raise them the first opportunity??? Are there any particular companies you would say stay away from??

Now I'm thinking it will probably end up to good to be true and we'll end up writing the check to the same shifty agent we have had our stuff with forever , but as much as we feel he gives us the run around- we simply can not afford to pay more than we are paying right now.

 

[missysid]

Not always will you see a rate increase from the new company. Most carriers will see a small rate increase every year. Maybe 2-5% on a annual premium. Say $10-25 annually. This is normally caused by inflation. The carriers trying to get new business should NOT jump rates at renewal in 1 year. It would not be cost effective. The cost to underwrite and issue a policy is about $75 from start to finish. They do not want to loose a client in the first 3 years or they lose money.

Now that said your rate should be about the same for the next 3-5 years assuming the carrier you are looking at does not insure in hurricane state heavily. If they suffer great a loss across the country they may try to make that up with local business in other areas. You just never know. A MAJOR carrier in IL just did this a few years ago and implemented a 35% rate increase on homeowners. Needless to say agents were not happy about this. They were loosing client and thus loosing money for losses we could not control.

I will send you a PM with a company we are hearing bad things about. I would rather not post it here. Although anyone who is interested can simply check out Illinois Department of Insurance website and you will see their rating.

Also if you are not comfortable with your current agent you can request a new agent with the same company. It will not change your rates and it happens all of the time. Simply call the home office and make the request. Don’t worry about hurting his feelings in most cases a switch will occur. The agent taking over your files will give him one of his clients to make it fair. No hard feelings that way.

 

[ZachnElli]

I work in an agents office and I wanted to comment on a few things. First Loss of Use, my company does not have a limit on to how much is spent here and they give you up to 2 years to rebuild. I don't think any other company gives that much or long. We have a current policyholder who lost her house to a fire in Nov. 2007 and she's still not in her new house! It's almost done though, but contractors can really drag out the process! Also, replacement cost on personal belongings, a pp said they didn't get the final check until their case was closed. That is also not the case with my company. Say they give you $500 to replace a tv, and it actually cost $1000 to replace it. You turn in the receipt and the form (lots of forms in insurance!) and they will send you a check right away. I know that in the case above where the lady's house burned down in Nov 2007, the claim rep would call us all the time asking us if we had talked to her because he had more money for her if she would just turn in the receipts and forms. We really like it when our policyholders ask us these questions! It is important to know what you are paying for!