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What Does It Mean If Your Homeowners Insurance Is Based on Replacement Cost?

When it comes to getting homeowners insurance in the Bronx, NY, one of the questions you will want to ask is if the policy is based on the home’s replacement cost value (RCV) or actual cash value (ACV). When you ask our agents at L M Insurance & Financial Services LLC, we will explain the difference between the two and why replacement cost coverage is ideal.

Replacement Cost Value Versus Actual Cash Value

When your homeowners policy is based on replacement cost, that means the coverage will take care of repairing, replacing, or rebuilding the home completely. The materials and items will be new and similar in quality to those replaced. The replacement cost would be based on current price for the necessary materials and labor. There is no deduction for depreciation with replacement cost coverage. But a policy based on actual cash value would deduct for depreciation, which is based on the age of the home and its condition.

The replacement cost coverage is for the home, while your personal property is typically covered for its actual cash value. 

Pros and Cons

Say your home in the Bronx, NY, is a total loss. With replacement cost coverage, you are protected from the financial burden of paying out of pocket because the home has full coverage, versus its depreciated value. 

Because replacement cost coverage is more extensive than actual cash value, you may pay a higher premium. Our agents will explain how the replacement cost is calculated, which typically uses the square footage of the home along with current construction costs. 

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Securing your home with the right insurance can seem like a daunting task. With our team of specialists at L M Insurance & Financial Services LLC, we can make it easy.

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