There are several loss cost valuation types and terms, and your Merrill Agent can discuss more with you. But three you will hear about frequently are Actual Cash Value (ACV), replacement cost, and agreed value.
Your various insurance policies – such as auto, home/rental, valuables, commercial, and more – are designed to make sure you’re covered in the event of a loss.
However, some valuation methods cover replacement more fully than others, and opting for savings on a policy premium now may have consequences if you should need to make a claim later!
Actual Cash Value is paid out as the fair market value of an item minus depreciation. ACV is generally the less expensive of the settlement options, decreasing your total out-of-pocket cost for your policy, but has a higher risk of leaving you with financial liability in the event of a claim. For instance, in an auto policy written with Actual Cash Value, a car purchased for $18,000 new that gets totaled in an accident might only pay out $10,000 – leaving you or a GAP insurance policy on the hook for the remaining $8,000. (In homes, the Actual Cash Value is not the same as, or impacted by, the Market Value.)
Replacement Cost makes the policy a bit more expensive, but it’s also better coverage because it will pay whatever cost (up to the policy limit) is necessary to replace the item with one of the same type and condition. For example, a two year old flat-screen TV that was damaged beyond repair would be fully covered if it was part of a homeowners or renter’s insurance policy with Replacement Cost instead of ACV.
The less-common Agreed Value is typically used for valuable items like paintings, jewelry, and custom/antique vehicles (but can be a good choice for commercial structures and vehicles under certain circumstances). When the policy is written, you and your agent will come to an agreement on the replacement value of the item, usually with the help of an independent appraiser, and that is the amount that will be paid out in the event of a claim because of the loss of that item.
If you aren’t sure what kind of cost valuation type is being used for your policies, or you want to change what you have currently, make an appointment with us today for a comprehensive review of your current coverage…we’ll make recommendations for the best options for your circumstances, so you can live your life with the most peace of mind!
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