If you’ve never really thought about it before, it seems like home insurance coverage should be straightforward: if you’ve been paying for your policy, then your insurance company should pay for any damage that your home may sustain under the terms of that policy. 

Except, what does it mean to “pay for any damage?” Does that mean the cost of repairs? Or does it have to do with the value lost?

Well, insurance claim settlements are evaluated in two different ways: using replacement costs or using actual cash value. The difference between these settlement types can mean quite a lot for your claim, so it’s important to have a good grasp of the two.

Keep reading to learn more about the two ways that insurance claim settlements are calculated, and reach out to a storm damage attorney for help making a strong claim for coverage.

How Do Replacement Cost Settlements Work?

Replacement cost settlements are meant to cover the total cost of repairing or replacing your home. This means the value of your home will not impact the settlement amount. One good way to estimate what your replacement cost settlement will be valued at is to figure out the average cost of home construction in your area by square foot, then multiply that value by the square footage of your home or the area that needs to be replaced.

Because replacement cost settlements are often higher than actual cash value settlements, replacement cost policy premiums are usually higher.

How Do Actual Cash Value Settlements Work?

Actual cash value settlements are a bit less intuitive than replacement cost settlements. Rather than reimbursing you for the cost of repairs, actual cash value settlements are based on the current market value of your home. This means the settlement will take into account things like the deviation in the value of your home over time. If your home was completely destroyed, this type of settlement may not cover all of the costs of constructing a new home because the value of your home may have been less than the cost of new construction.

Actual cash value is calculated by figuring the replacement cost, then subtracting the depreciation in value of your home. Because actual cash value settlements are lower than replacement cost settlements, premiums on policies offering actual cash value settlements are usually lower as well.

Get Help Making or Defending Your Storm Damage Claim From an Insurance Attorney

If you’ve been paying for your premiums, then your insurance company should compensate you for any damage covered by your policy. Unfortunately, it doesn’t always work out that way. Sometimes insurance companies use bad faith tactics to get out of paying policyholders what they rightfully owe.

If you feel your insurance company is lowballing you, delaying your claim, or denying your claim unfairly, you may need to file a bad faith lawsuit to get the compensation you deserve. Reach out to a bad faith insurance attorney to learn what the next steps in your case should be.

If you believe your storm damage home insurance claim was denied in bad faith, reach out to a bad faith insurance attorney for assistance.

Get a FREE Consultation