Homeowners insurance options - my agent isn't helpful!

[Tim Sansone]

My insurance agent is being less than forthcoming when it comes to info on homeowners insurance options. I'm trying to compare RC to ACV and she won't give me all of the options. The company has placed too high a value on my property (in an RC policy), and the main question that she now refuses to answer is "what is the payout in the event of a total loss?" Not only will she not give me a figure, she says that the insurance company will not give you anything unless you rebuild. I feel she is not being truthful. I've seen discussions where owners have taken the proceeds from a loss and purchased other properties instead of rebuilding. What is everyone experience with this problem? In an ACV policy, is the payout supposed to be the limit of insurance listed on the policy? Please help!

[John Mocker]

Tim,

We write with many markets.  Most of the better rates are from companies that write the Building coverage on a "Replacement Cost" (RC) basis.  It is a better coverage for the policy holder than "Actual Cash Value" (ACV).   A policy based on ACV will normally have a lower limit (ACV = RC minus depreciation).  RC is the cost to rebuild the structure with the same kind and quality.  In a market where rents are depressed, the RC will often be significantly higher than the ACV.  

The problem with ACV is that, on a partial loss, the claim, under an ACV basis, has a deduction for depreciation.   You will have to kick in for the deductible and the depreciation.   If your Rental is in good shape, updated systems, well maintained, etc. the rates from some companies with only RC may be equivilant to others that will only do ACV.   I just wrote one in CT that one of our carriers for $400,000 RC was $100 less than the next best rate which was based on $110,000 ACV for the same property.

The second item that was confusing is what the payout will be.  Most policies (homeowners or dwelling/fire policies) that include RC contractually require you to rebuild in order to get the Replacement Cost.   The initial payment will be for the ACV and then after you rebuild they will pay the remainder.  If you chose not to rebuild you do not get more than the ACV.  The reason for this clause is that the policy is to make you whole.  If they paid the RC without you having to rebuild, you would be getting more than the value at the time of the loss.  

Hope this helps.   If you need more info on the RC vs ACV please let me know.