Homeowners insurance policies have an option that you can choose to insure the ACV or RC, which can sometimes be confusing. Here you are, just wanting to insure your house and the agent throws these technical terms at you. So what is the ACV and the RC when it comes to mobile home insurance, and why should you be concerned? Here is a rundown on both.
ACV refers to actual cash value and RC refers to replacement cost. This blog post will give you a clearer perspective on both.
To put it simply, ACV and RC differ by ‘wear and tear’. You may know it as ‘depreciation’. ACV considers the depreciation in value of the mobile home and seeks to insert it into the insurance equation. Consider that a 10-year old mobile home has burned down. The insurance company will calculate the depreciation of the mobile home, each year over the last ten years and will deduct it from the cost it would take to replace the home. What you get after the deduction is called the ACV. In short, it is like you are co-insuring the home.
Replacement cost is simply the cost it would take to replace the home with a similar or identical piece. If a similar mobile home costs $100,000, the insurance company will pay you $100,000. Even if the home was old and could not recoup its investment if sold, the insurance company will give you the full value. Please note that special homeowners’ insurance covers the replacement cost while a basic homeowners’ insurance covers only the actual cost value. So which deal is best for you? The question is best answered by an experienced insurance agent.
When is the ACV option better?
The basic idea behind insurance is to make the insured item whole again. So, in this case, the actual cost value will fall short. Here, RC can create a beneficial situation for the mobile homeowner. However, some insurances have a requirement that to get the full insured amount, you must finish the repairs on your house (if the house is not totaled). So initially, you will get only the actual cost value. The rest is contingent on the repairs being done, which prevents the party from pocketing money and gaining from the loss.
When is the RC option better?
However, RC is not always good. The real estate market is known for fluctuations, in which case the ACV may turn out to be more than the replacement cost. It is common when the real estate market is strong and homes are selling for a high price. In this case, the replacement clause on your homeowner’s insurance policy will spoil things for you if something goes wrong with your house. At Anderson & Associates, we will give you proper advice on which option is best for you, and answer any questions that you may have regarding your mobile home policy.
