A replacement cost policy pays the reasonable and necessary expense incurred to repair or replace damaged property using current day labor rates and material costs, less the applicable deductible.

Two payments are usually made by the carrier for claims made under a replacement cost policy. The initial payment made is known as the actual cash value (ACV) payment. This is the cost to repair or replace the damaged property less the applicable depreciation of the materials currently on your home due predictable factors such as age and wear & tear. Once the work is completed, proof of completion is provided to the carrier and they will release the remaining recoverable depreciation.

Payments are split for two primary reasons. One, it deters contractor fraud by preventing the contractor from collecting all of the funds and skipping town without doing the prescribed repairs. Two, it incentivizes the insured to have the work completed and not pocket the money.

An actual cash value policy pays the reasonable and necessary expenses incurred to replace your damaged property using current day labor rates and material costs, less the applicable depreciation for the materials on the home and the deductible.

One payment is usually made by the carrier for claims made under an actual cash value policy. The initial payment made is known as the actual cash value (ACV) payment. This is the cost to repair or replace the damaged property less the applicable deductible and depreciation applied to the damaged items currently on your home due to their age. The main difference between a replacement cost policy (RCV) and an actual cash value (ACV) policy, is that under the ACV policy the depreciation is non-recoverable. This means that you’ll be responsible for the deductible and value of the non-recoverable depreciation applied to your claim.

It’s important to read your policy. Some replacement cost policies automatically switch to actual cash value for roof surfaces after a set number of years. Also, you can add certain endorsements onto an existing policy to set the coverage for roof surfaces to actual cash value in exchange for reduced premiums. Cheaper premiums might be great for your pocketbook should you never have a loss, but if you do, this could be a very expensive mistake due to the lack of coverage.

No. An insurance policy owes for the reasonable and necessary costs to repair or replace your damaged property, less your applicable deductible. The insurance deductible is the amount you contractually agreed to pay towards the repair/replacement of your damaged property before the insurance company pays the amount that exceeds the deductible. Agreeing to pay, or “eat” your deductible would require our company to knowingly submit a falsely inflated invoice to your insurance carrier.

For example: Say you have damage to your roof. The insurance carrier calculates the replacement cost to be $10,000 and you have a $1,000 deductible. The carrier’s total obligation to you is as follows: $10,000 - $1,000 = $9,000. If a contractor agreed to waive your deductible, they would have to invoice the carrier for $10,000, even though they did the work for only $9,000. The reasonable and necessary costs you incurred to replace your damaged roof were only $9,000. If they invoiced truthfully and correctly, providing the carrier with their $9,000 invoice, the carrier would subtract your applicable deductible from this amount and issue you a payment of only $8,000.

Knowingly invoicing an insurance carrier for inflated amounts is insurance fraud and is a crime.

This is a seemingly confusing coverage that’s actually quite simple once you boil it down. The most important word to emphasize is additional.

ALE coverage pays for the additional expenses you incur should your property become uninhabitable after a loss. It does not pay for the expenses you were incurring before the loss such as your mortgage or utility bills.

For example: Say on average you were spending $200 a week on groceries, but now because of the loss, you’re staying in a hotel and having to eat out instead. On average, you’re now spending $450 a week. The insurance should reimburse you for the additional expenses. $450 - $200 = $250.

Regarding accommodations. The carrier will authorize a hotel stay for short term accommodations or temporary housing for longer term repairs. The accommodations should be of roughly the same quality as you’d have at home, no more, no less.

For mileage, say you normally commuted 30 miles to and from work. Now, because of having to be relocated due to your loss, you have to commute 50 miles. The carrier would owe you for the excess. 50 miles - 30 miles = 20 miles.

These expenses must be reasonable and provable. This does not mean after a loss, eating five course meals, paying for other’s food besides you or your immediate family, staying at five star hotels or going on vacations. These are expenses that the carrier should not, and will not pay for.

Ordinance and law coverage is another commonly misunderstood coverage. Ordinance & Law coverage, sometimes colloquially referred to as code coverage, covers the increased costs associated with upgrading your property to current building code standards after a covered loss.

In some policies, this coverage is baked in. However, in others, it must be added by endorsement. Typical limits for residential policies are 10% of the Coverage A (dwelling) limit. For example if you had $100,000 of coverage for your home, you would have $10,000 of coverage available for necessary code upgrades.

Policy language regarding what exactly ordinance & law coverage does cover varies widely so it’s important to thoroughly read through this coverage and understand how it does (and does not apply). For instance, some O&L coverages even pay for the demolition of adjacent, yet undamaged sections of property and for their reconstruction back to current code compliance.

Ordinance & law coverage is never a bad item to have on an insurance policy, however, it’s especially important to have on a policy for an older building as building codes are constantly being updated and the costs to update these structures can be quite substantive.

One final point of confusion regarding this coverage. If you look in the exclusions section of a policy, you’ll often see ordinance & law listed as an exclusion. This means it is excluded as a cause of loss. Meaning that if you find out that the roof sheathing underneath your roof shingles isn’t the proper thickness to meet current code, you cannot file a claim for an otherwise undamaged roof just because the sheathing doesn’t meet current codes. However, if the roof was damaged by a covered peril (i.e. wind, hail, lighting or fire) and the shingles had to be replaced, the decking should be covered as it was the result of a covered loss.