Should I change home/rental house property insurance to ACV policies from RCV polici

[mghandyman]

TLDR: RCV insurance policies, in NC, will only pay ACV if the house is not replaced. At my age (71) and family longevity history, I have no desire to endure the settlement negotiations, house plan selection, HOA approval, finding a builder, permitting process, material selection and actual construction process to rebuild. Taking one or two years to complete. Most houses are east of the Intracoastal Waterway, so in hurricane ally. Which means the total premium difference will be five figures. So is considering ACV policies appropriate? Pros? Cons?

Details:
1. I currently have Replacement Cost Value (RCV) policies on my home and rental houses.
2. My insurance agent recommends substantial increases in my coverage amounts due to increased building cost.
3. I recently discovered that my RCV policies will only pay Actual Cash Value (ACV) if the property lost is NOT replaced. Or if the coverage amount is less than 80% of replacement cost.
4. For a variety of reasons, it is highly probable that if a total loss was to occur the house would not be replaced. For some houses a certainty.
5. Depending on when the loss occurred and the then going rate for building, it is possible that the coverage amounts of some of the policies would be less than 80% of RCV. Almost certainly if the coverage amounts are not increased as the agent recommends.
6. In the event of a partial loss it is probable that the financial loss, above ACV, would not be devastating.
7. The houses range in age from 23 to 50 years old. In good but not great shape. So the affect of depreciation will likely be significant.

After several discussions with my insurance agent I do not have a good understanding of the best available option(s) for my insurance needs.

I am interested in others’ thoughts. What else should I consider?

 

[Kings over Queens]

5 figures as in 10,000

or 5 figures as in 99,000?

It's really hard to give an opinion on the economics, but if you are determined not to go through the ordeal of claim settlement, and are happy to accept the acv (depreciated) value, then sure. Keep in mind, the acv probably won't be the full policy limit shown on your declarations unless it's a total loss. In the event of a partial loss you are going to come out of pocket for the repair, unless you opted to accept the value of the partial loss and demo the building, sell the land, and not look back.

Is the agent recommending the increased construction and translated insurance values, or is it the carrier? I ask because I've spent enough time tweaking those formulas to know that they aren't reliable. It takes a lot of data to really drill into an accurate replacement cost using the insurance company software. It's more of a science than assuming square footage x cost per square foot and eyeballing a number.

the other thing is that insurance companies are notorious for pushing coverage based on construction values and in my experience, almost always higher than reality. I use my own house as an example, back when I built it, cost was $135 per foot, new insurance company wanted to base insurance value at closer to $250 when I was finished.

 

[Gotadimple]

TLDR: RCV insurance policies, in NC, will only pay ACV if the house is not replaced. At my age (71) and family longevity history, I have no desire to endure the settlement negotiations, house plan selection, HOA approval, finding a builder, permitting process, material selection and actual construction process to rebuild. Taking one or two years to complete. Most houses are east of the Intracoastal Waterway, so in hurricane ally. Which means the total premium difference will be five figures. So is considering ACV policies appropriate? Pros? Cons?

Details:
1. I currently have Replacement Cost Value (RCV) policies on my home and rental houses.
2. My insurance agent recommends substantial increases in my coverage amounts due to increased building cost.
3. I recently discovered that my RCV policies will only pay Actual Cash Value (ACV) if the property lost is NOT replaced. Or if the coverage amount is less than 80% of replacement cost.
4. For a variety of reasons, it is highly probable that if a total loss was to occur the house would not be replaced. For some houses a certainty.
5. Depending on when the loss occurred and the then going rate for building, it is possible that the coverage amounts of some of the policies would be less than 80% of RCV. Almost certainly if the coverage amounts are not increased as the agent recommends.
6. In the event of a partial loss it is probable that the financial loss, above ACV, would not be devastating.
7. The houses range in age from 23 to 50 years old. In good but not great shape. So the affect of depreciation will likely be significant.

After several discussions with my insurance agent I do not have a good understanding of the best available option(s) for my insurance needs.

I am interested in others’ thoughts. What else should I consider?

The first question to need to ask yourself is not will I replace a house if it is a total loss, but how much am I willing to put out to repair a home that is not a total loss. You have answered that in #6.

The second question is what am I willing to risk in a partial loss? And is the premium decrease of going to ACV policies going to cover repairs that are discounted for depreciation, wear and tear, and my deductible?

The intent of Replacement Cost (RCV) is to keep your home insured to above 80% of replacement cost and ideally at 100% of replacement value. The age of your home has no bearing on it. The insurance is there to restore the home to the way it was before the loss occurred. If you have been following your agent's recommendation on increasing insured value each year, there should be no case where you are insured for less than 80% of replacement cost. Under that condition, you are only subject to paying your deductible for the covered loss.

The risk you bear when you move to an ACV policy is that you are then subject to depreciation and possibly an uninsured penalty if repair/replacement exceed the insured value, plus a deductible. That is, in a loss, the insurer would only repair/replace to the actual cash value minus depreciation minus your deductible UP TO the total amount of insurance. That would be the case in a partial loss or a total loss. The the financial cost could be substantial as you pointed out.

There is no need to apply depreciation, or underinsured amount with a Replacement Cost policy - but you will pay a deductible on the loss.

Most people take RCV because the increased premium is not that high and their insurer automatically increases the coverage amount in consideration of costs of repairs and inflation. Hope that helps!

 

[OldShooter]

... What else should I consider?

If you are dealing with a tied agent (State Farm, Allstate, etc.) you should also talk to an independent agent. A tied agent can only tell you what his company has available/will do. Other companies may offer different options.