Actual Cash Value estimate

[Ken K]

Might anybody venture an estimate on this? . . .

1) a 60 year old house in dated but reasonably good condition is purchased for 75K

2) the insurance agent's system determines that the correct replacement cost value for that square footage in that location is 190K

3) it's insured for 190K, but with Actual Cash Value coverage

What amount might be paid by the insurance company if it was a total loss shortly after it was purchased?

Any opinions would be much appreciated. Thanks.

Ken

[Donald Stevens]

Thats a very good question without an easy answer. I can give you a generic one and hopefully that is helpful. Because every home has different features, building material quality, and age of materials, (maybe the kitchen was renovated 5 years ago) the value and depreciation can vary greatly.

The rule of thumb I've used for easy ACV calculation is if its a frame home depreciate by 1% per year and if its brick then its .5% per year, up to a max of 50% depreciation. When it comes to ACV its better to be a little over insured than underinsured because if your underinsured you may get penalties on top of depreciation when you dont carry a minimum amount of coverage to satisfy the contract with the insurance company (called coinsurance penalties).

Ok, here it goes. RC is replacement cost and ACV is actual cash value.

RC=190,000, Depreciation for frame=50% (54 years times 1% stop at max 50%), Depreciation for brick=27% (54yrs x .5%)

So then you take the depreciation amount off of the replacement cost for your insured value.

$190,000x50%=$85,000 (This happens to be the depreciation amount and the value because its exactly half)

$190,000x.27%=$51,300 (That is the amount the RC is reduced by so the home should be insured for $138,700)

So if you have a partial claim lets say for $10,000, the depreciation still applies. With a frame home the payout would be $5,000 minus the deductible and a brick home would be $7,300 minus deductible.

Now this is all a best guess at what your ACV could be. A claims adjuster would come through at the time of a claim and depreciate everything according to age and care to determine a value.

All that being said, being insured for RC while the company will only pay ACV means you are probably over-insured. From a claims perspective you will be fine. The problem is you are paying premiums for $190,000 of coverage when the carrier is not going to pay that out when you have a claim.

Hopefully this reply is useful for you.