Insuring your home against disaster (natural or otherwise) is an absolute necessity which is why people need actual cash value homeowners insurance calculations. Floods, storms, break-ins and even the odd burst pipe or two can leave you and your family desolate. Accidents can happen in the blink of an eye and most of us don’t have the extra funds on hand to repair the damage immediately. This fact stands not only for expensive elements such as the physical structure of your home, but also for the contents of your home (should your insurance cover it). Appliances often don’t last much longer than their warranties allow. Replacing microwaves and imploded television sets every so few years, is a normal part of life.
The bottom line? Owning a home is expensive business. The more you can protect yourself against all those unforeseen little accidents, the better. Taking out actual cash value homeowners insurance should protect you from the brunt of the disaster.
When taking out insurance, you will be faced with scores of jargon flowing throughout the contract, and some phrases might be difficult to understand when your broker tries to explain them with even more jargon. One of the phrases bound to pop out at you is ‘Actual Cash Value’.
But what is it, how does it affect you; and how do you determine the actual cash value of your insurance? Here’s a short explanation:
Actual Cash Value Homeowners Insurance – What is It?
Actual cash value homeowners insurance, as opposed to replacement cost insurance, refers to the reimbursement of the depreciated value. This basically means that you will receive a sum of money that reflects the current value of your dwelling, your shed, or in example your tread mill if it breaks down, if your home insurance covers it that is, rather than the new price.
How do I Calculate My Actual Cash Value Homeowners Insurance?
To prevent any disputes, a specific formula is in place to determine the actual cash value if you should place a claim against your homeowners insurance. The depreciation value of the item is subtracted from the cost of replacing the item.
So: Replacement Cost – Depreciation = Actual Cash Value.
To calculate the depreciation of the item, insurance companies establish the working life of an item, and then determine the amount of time the item had left of that life when it broke.
Let’s continue with the example of the broken treadmill. Say the average ‘mill lasts for about ten years. After three years of using it the treadmill breaks. That means that the treadmill still had about 70% of its life left, and that you used up about 30% of it.
Now, take into account its replacement value. If you were to replace that treadmill now, its current cost would run at $3500.
Now put that into the equation:
$3500 (replacement cost) – 30% (depreciation) = $2450 (actual cash value).
Your insurance company will pay out $2450 towards your claim. It’s as simple as that. No disputes, no sentimental value, no guesswork.
It does, of course, become a bit more complicated to work out when you are putting in a claim for a collapsed attic roof, instead of an appliance that could easily be bought at a store, but that is what your insurance company is there for.
Homeowners insurance is not a debatable issue. Having it, places a protective blanket over your home and its contents, and it takes out a lot of the stress from an accident or disaster (not all, of course – nobody likes to get rained on in the living room while waiting for the roof to be repaired). Even something small like the nuisance of a broken toaster can be taken care of in a heartbeat (depending on the company and policy you choose).
Many different types of home insurance policies are available. Depending on your needs and wishes you can include specific options such as natural disaster coverage in example. In this case you should know that damage from earthquakes is typically not covered. Most home insurances also cover personal injuries that happen on your property if you are liable. These are just some of the things you should look into when getting home insurance. Naturally, the more coverage you want the higher your premiums will be.