Insurance companies have different ways of calculating your insurance payout. However, the recognized standard method for calculating reimbursements is to use the actual cash value (ACV) or market value. The ACV is calculated by subtracting depreciation from the replacement cost. (In a statement of loss, depreciation refers to the amount that won’t be released until the repairs or replacement is finished) It’s based on the market value or the initial cost of your home and the value of your property with depreciation factored in. (Depreciation, in this case, is calculated using a formula taking into account the property’s age and category). The replacement cost, as the term suggests, is the total cost needed to finish repairs or complete a roof replacement.
The term replacement cost is quite self-explanatory. However, the term ACV isn’t as straightforward. For one thing, the term has several legal definitions, so it’s not surprising there is some confusion about the term. In fact, some homeowners use the two interchangeably. That’s why the residential and commercial roofing contractors at Deschutes Roofing & Insulation explain in this post the difference between the two.
Most courts have upheld the insurance industry’s definition of the ACV, which is the replacement cost minus depreciation. Depreciation here refers to the term found in statements of loss or estimates about your insurance payout.
How do you differentiate between the ACV and the replacement cost? Both are both based on the amount needed to repair or replace damage to your property, but the formula for calculating the former takes into account depreciation while the formula latter doesn’t.
The terms in the insurance industry can be confusing. If you’re having trouble understanding them or encounter any difficulty, consult a residential roofing contractor. Some contractors offer insurance claims processing assistance.
Looking for professional roofers in your area?
Deschutes Roofing & Insulation offers a wide range of professional roofing services, including insurance claims processing assistance, as well as premium metal roofing options. To get a free estimate, call us at (541) 728-0004 or fill out this form.
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