Comparing Homeowner Policies? Watch Out For This!

Written By: Michael Dollar

Date: September 28, 2016

Choosing a homeowners insurance policy can be confusing. There are a lot of variables to consider: making sure you find adequate coverage, a reasonable deductible and a company you can trust. A good rule of thumb is to keep the 3C’s in mind: cost, customer service and claims processing. You want a good balance between the three. Low cost at the expense of terrible service is not worth it.


Replacement Cost vs. Actual Cash Value

One thing that deserves your careful attention is the method the insurance company uses to replace your belongings. You can choose between replacement cost and actual cash value (ACV):


  • Replacement cost is what you would pay for the item if you bought it today.
  • ACV is computed by subtracting depreciation from the replacement cost. Depreciation is a decrease in the value of an item due to its age and the wear and tear it endured.


Say your sofa was damaged and you file a claim to replace it. You paid $1,000 for it three years ago.

  • If you have ACV coverage, your insurance might pay $750 because that is what the sofa is worth today (the replacement cost minus depreciation).
  • If you have replacement cost coverage, your insurance might pay $1,100 because that is what it would cost to buy a similar sofa today.


Buyer Beware

An insurance competitor sells what it calls a “next gen” policy. Their definition of ACV not only depreciates your belonging based on time, wear and tear but also “economic and functional obsolescence.” Now, depreciation has always been subjective, but this could mean something like a family heirloom may have very little economic value or usefulness in their eyes. An item with sentimental value could be depreciated to the point where you receive no compensation for it at all.


Other language in the policy to watch out for: “We may depreciate all replacement costs, including by way of example but not limited to the costs of material and labor.” How does labor depreciate? Good question, when the labor needed to paint a wall or repair a plumbing leak certainly doesn’t decrease over time.


If your homeowner’s policy doesn’t adequately cover the things you cherish most, it can make a bad situation worse. When you’re dealing with the trauma of a break-in or a natural disaster, that’s not the time to find out your insurance company doesn’t have your back. Please carefully read over everything when you comparison-shop.


Hutchinson Traylor is committed to educating you about insurance products so you make the choice that’s best for you. Call them today at 800-432-2997 to talk with a caring, friendly agent. With offices in LaGrange, Columbus and Moultrie, Hutchinson Traylor always has you covered with a comprehensive selection of insurance and financial services for your life.


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