Replacement Cost vs. ACV

On your homeowners insurance policy, you’ll see either “replacement cost” or “actual cash value (ACV)” as the claim payout method for your home and belongings. If your home has been updated (roof, plumbing, heating, electrical) within the last 30 years it likely has replacement cost coverage as a default. With older homes or roofs in bad condition, it’s not uncommon to see ACV coverage.

Actual cash value takes depreciation into account, and is the lesser coverage. Take your 10 year old TV and try to sell it on your own today, and it’ll likely be worth pennies on the dollar compared to what you paid for it. Your 40 year old roof may be worth 10% of what it would cost you to replace with a brand new one.

Replacement cost doesn’t factor depreciation into account. That means your 10 year old tv gets replaced with a brand new equivalent, and your roof does as well.
If it’s an option, you want replacement cost every time on your home and personal property.

What are your home insurance options for high fire areas?

Have you received a double digit increase on your homeowners insurance rate or been flat out non-renewed? It’s becoming more and more common in California every year, and the trend doesn’t appear to be stopping any time soon. Over 350,000 homeowners were non-renewed from 2015-2019, and we expect an even greater increase in 2020 due to the Paradise fire and others.

So what are your options?

Depending where you live, there are still standard homeowners insurance companies actively issuing new policies. The more traditional companies like Nationwide, State Farm, and Travelers will be your best bet because they offer the most comprehensive coverage at competitive rates. If you’re far from a fire department, a tough to access area, or a public fire hydrant isn’t nearby, that might not be an option though. What do you do if the standard market won’t insure you?

The California FAIR plan is a state backed insurance program that will insure your home for some of the more basic, but costly, claims scenarios: Fire, lightning, smoke, and optionally windstorm/hail, explosion, riot, aircraft, vehicles. The FAIR plan isn’t as complete as a traditional homeowners policy, and is missing coverage like water damage, collapse (fallen tree), liability, theft, and more. A handful of companies offer a “Difference in Conditions” policy, that works in tandem with the FAIR plan to create something very similar to a traditional homeowners policy. There are only about a dozen companies currently offering coverage.

If the standard market and FAIR plan can’t offer what you want, then the “Surplus Lines” market is going to be your last option. They deal with the very tough to place homes in extremely high fire areas that have unique characteristics or high rebuild values. With Surplus Lines policies you have more flexiblity to choose the coverage you want, but be aware that most limits don’t come standard, and you have to specifically request the coverage you want.

In any scenario, working with an insurance broker who has multiple options and specializes in high risk homeowners insurance is going to be your best bet. They should have contacts and options for any of the three scenarios outlined above.