Warm spring days are a nice preview of what’s to come as we approach summer. However, spring weather is also very unpredictable. Temperatures fluctuate between warm and cool. A stretch of nice sunny days can be followed by wet stormy days. Lightning, wind, rain, and hail can cause damage to your property very quickly.
Even things on your property that you may not normally think about. When Mother Nature damages items such as decks, fences, swimming pools, hot tubs, piers, and docks, claims payments made in accordance with the policy can be confusing. Depending on if an item is considered a separate structure or part of a building determines if the claim payment will be made on an actual cash value (ACV) or replacement cost value (RCV) basis.
Before delving into different claims scenarios, it’s important to understand the difference between actual cash and replacement cost value.
Actual Cash Value (ACV)
Actual cash value is an amount of money that’s paid to a policyholder after a loss or damage to insured property. The calculation is made by subtracting depreciation from replacement cost. Depreciation is calculated by determining the expected lifetime of an item and calculating what percentage of the life remains.
Replacement Cost Value (RCV)
Replacement cost is an amount of money that’s paid to a policyholder after a loss or damage to an insured property. This amount of money is based on what it would cost today to replace an item or structure back to its pre-loss condition.
Now that you understand these claim payment options, here are some common claims scenarios that are handled by our Claims department.
Claim Scenario #1
You’ve finally purchased the home of your dreams. It’s in a quiet subdivision and it has a detached white picket fence. The backyard has several lovely shade trees, but they still allow sunlight into your pool. The pool is surround by a nice wooden deck that’s attached to your home. Also, sitting on the deck is a hot tub. You can’t wait for summer to arrive so you can invite your friends and family over for a pool party. Unfortunately, just before summer, a severe storm goes through your neighborhood. Not much remains of your white picket fence. Your pool and deck are severely damaged by one of your large shade trees. Thankfully you have an insurance policy with adequate coverage limits. A claim adjuster has visited your property and has determined the following claim payments.
| Item | ACV | RCV | Claim Payment |
| Detached white picket fence | $3,000 | $5,000 | $3,000 |
| Swimming pool | $5,000 | $10,000 | $10,000 |
| Wooden deck | $4,000 | $7,000 | $7,000 |
| Hot tub | $5,000 | $10,000 | $10,000 |
Your total claim payment from this storm is $30,000.
Claim Scenario #2
You’ve just purchased a home in the country on several acres of land. There are no neighbors in sight. Nothing but fresh air and peace and quiet. Your yard includes a fence that’s attached to your home. All you must do is open your patio door and your dog, Rosie, can go out and play. Away from your home you have a large above ground swimming pool. And after a hard day’s work, you really like using the hot tub just off the wooden deck on a separate concrete patio. Unfortunately, a warm spring day finished with a severe storm that damaged your property.
Again, you have an insurance policy with adequate coverage limits. A claim adjuster has visited your property and has determined the following claim payments.
| Item | ACV | RCV | Claim Payment |
| Chain link fence | $3,000 | $5,000 | $5,000 |
| Swimming pool | $5,000 | $10,000 | $5,000 |
| Wooden deck | $4,000 | $7,000 | $7,000 |
| Hot tub | $5,000 | $10,000 | $5,000 |
Your total claim payment from this storm is $22,000.
Insurance Coverage
In both scenarios above, the actual cash value and replacement cost value numbers are the same. However, the claim payment made in each is different. The differentiation is based on if the item is attached to your home or not. If it’s not attached to your home, it may be considered a separate structure. Separate structures that aren’t buildings are covered on an actual cash value basis.
In Claim Scenario #1, the hot tub is considered part of your home because it's sitting on the deck which is attached. In Claim Scenario #2, the hot tub is on a concrete patio which isn't attached to your deck. Therefore it's considered a separate structure and the claim payment is made on an actual cash value basis.
Regarding the swimming pools, neither one of them is literally attached to the home. However, in Claim Scenario #1 the pool is surrounded by a wooden deck that’s attached to the home. Therefore, the claim payment for the pool is made on replacement cost value basis. The pool in the country is a separate structure so the claim payment made is based on actual cash value.
Lastly, claim payments for the fences are different too. In Claim Scenario 1, the white picket fence isn’t attached. In Claim Scenario 2, the fence is attached so Rosie can go outside and play.
So, you think you’ve got it figure out?
Claim Scenario #3
After 40 years of work you’ve decided to retire and buy a home on a beautiful lake. After researching a variety of docks, you decide to purchase a dock that must be taken out of the water before it freezes each year. Your neighbor’s dock is permanent and is made to withstand snow and ice. After a crackle and boom on the 4th of July a severe storm pushes through the area. Fallen trees severely damage your new dock, as well as your neighbor’s. Again, you have an insurance policy with adequate coverage limits. A claim adjuster from your insurance company has visited your property. A claims adjuster from Insurance Company B has visited your neighbor’s property.
| Item | ACV | RCV | Claim Payment |
| Your dock (Your insurance co) | $10,000 | $20,000 | $20,000 |
| Neighbor’s permanent dock (Ins Co B) | $10,000 | $20,000 | $10,000 |
Insurance Coverage
In Claim Scenario #3, the payment for each dock is different. You’re probably wondering why because they’re both separate structures and not attached to a building. Because your dock is stored on land during the winter months, it’s considered personal property making it eligible for replacement cost value.
Final Thoughts
Insurance isn’t fun to buy and can be difficult to understand. Hopefully understanding actual cash value and replacement cost value makes the claims process easier to understand. Finding out how items are covered after a loss isn’t a good situation for you or your insurance company. At a minimum, talk to your independent agent on a yearly basis to review your insurance policy.
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This article is intended for general educational and illustrative purposes only and should not be construed to communicate legal or professional advice. Further, this article is not an offer to sell insurance. Please consult with your licensed insurance agent for specific coverage details and your insurance eligibility. All policies are subject to the terms, conditions, limitations, definitions, and exclusions contained therein.
