Understanding Settlement Methods: Actual Cash Value vs. Replacement Cost
When a loss occurs at one of your investment properties, how your insurance pays out can make a significant difference. Which settlement method best suits your business, Actual Cash Value (ACV) or Replacement Cost (RC)? Watch the video below to learn more about the benefits of each and what to consider when choosing the right coverage for your portfolio.
Transcript:
Imagine one of your investment properties was unexpectedly damaged. How would you want your insurance to handle the payout?
You have two settlement method options: Actual Cash Value or Replacement Cost. The difference between each lies in depreciation; the reduction in value of your property over time due to wear and tear.
Actual Cash Value would pay out what your property was worth at the time of loss, minus depreciation and your deductible. The benefits? ACV is cheaper than Replacement Cost, you can insure to a lower value per square foot, and the payout is yours to use however you like- you could repair the damage or sell the property as is and use the money to buy a car, for example.
Your other option, Replacement Cost, would first pay out the ACV amount for repairs. If your costs exceed this amount, the insurer would then send a second check for reimbursable depreciation. While RC requires you to insure to a higher value per square foot, it offers more financial protection and the opportunity to recoup money deducted for depreciation.
Not sure which settlement method is right for you? Our team of experts is here to help.