The post of 8/30 mentioned that Hurricane Irene damaged my front porch awning.
When you look to your insurance policy to cover damage to property, two important issues are:
- Is the loss covered?
- How much will I be paid for my claim? The answer to this question is found in the policy under the section Loss Settlement.
The common Loss Settlement provisions found in insurance policies are:
- ACV – Actual Cash Value. This term is not defined in the policy. The commonly understood meaning is replacement cost less depreciation.
- Replacement Cost. Generally defined as – the cost of repair or replacement, without deduction for depreciation up to the limit of insurance on the policy. Each policy will have its own definition.
- Guaranteed Replacement Cost. Again each policy will have specific language, but the cost of repair or replacement, without deduction for depreciation regardless of the insurance limit on the policy.
- Functional Replacement Cost. This provision is intended to provide an optional loss settlement for dwellings built using obsolete, antique or custom construction materials and methods with current materials and methods.
See sample wording from several different insurance policies. ((See actual policy for complete wording of the Loss Settlement section.))
Take my cloth awning as an example. It cost $935 in 2002. The contractor estimated the useful life of a cloth awning as 10 years. So the actual value of my awning when it was damaged is about $93, because of the depreciation. (I think my awning had a few more years of use because of my good maintenance.)
The cost of a brand new awning is $1,200. Do you see why having Replacement Cost is better than ACV at claim time?
In my case, the awning’s frame supports could be replaced for $55. The insurance policy will pay the lesser of the Loss Settlement provision found in the policy or the repair cost.
My Home Insurance policy has a $500 deductible, so no claim to the insurance company this time.