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June 2, 2021
When purchasing an insurance policy, it is important to fully understand your coverages. That way you can make sure that your interests are protected by the policy. One of the key things you need to understand is the claims process and what happens when your insured property is damaged. Insurance companies in California use two different strategies to determine what happens next. These two strategies are known as actual cash value (ACV) and replacement cost (RC). They will determine the amount of reimbursement you receive when you file a claim.
The first strategy is called replacement cost (RC). RC is the amount of money it would take to replace the item that was damaged or lost. For example, if you have a sedan that you paid $30,000 that was damaged.
RC would be what it would take to replace the same exact vehicle which may be valued at $35,000 in today’s market. This type of coverage is designed to fully replace the item that was damaged.
RC is often implemented in the form of reimbursement. So you would first purchase the item and then send the receipt to the insurance company to pay for it. RC is a higher amount of coverage than actual cash value.
Actual cash value (ACV) is also designed to help you replace a damaged item. However, it is less than the RC. ACV is the cost of the item, minus the depreciation and your deductible. So for example, if the same car that cost you $30,000 is two years old and is now worth $25,000 on the market, you will only be reimbursed for the $25,000.
The idea of ACV is predicated on what the item would cost on the market. ACV is reimbursed as a single check. Then you would look to purchase a vehicle.
Deciding between ACV and RC for your insurance policy depends entirely on your unique needs. Policies with RC have higher premiums, but you don’t have to worry about coming up with the added resources to fully replace your damaged item. Policies with ACV are more affordable, but you will have to share in some of the cost of the loss. The best way to determine which strategy is right for your insurance needs is to speak with your insurance agent about your options.
If you’re buying a new insurance policy in California, it’s important to really understand what you are purchasing. You don’t want to purchase a policy with ACV only to learn when you make a claim that you do not have RC coverage. Before purchasing any policy, it’s a good idea to really consult with a knowledgeable insurance agent.
The team at Panorama can help. We’ll answer any questions and fully explain what your policy covers. Then we can help you determine which policy strategy is right for you. Give us a call today to get started.
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Panorama Insurance Agency 19302 Citronia Street Northridge, California 91324
