Tuesday Morning Insurance Tidbit - ACV vs. RCV

[InsuranceMan]

Happy Tuesday to all my ADI friends!!!!!!

                In today’s riveting installment of the “Tuesday Morning Insurance Tidbit” direct from my secrete lair in Sheridanopolis, we are going to unmask the insurance supervillain that is

Actual Cash Valuation  

vs.

Replacement Cost Valuation 😊

                Most people, when looking at their insurance policy (If they even do.  Did you know that surprisingly, over 65% of people in a HuffPost survey said they have never looked at their insurance coverage in detail!??!!?!?!?) wonder what in the multiverse these terms even are?!?!?!?!?!? 

                WELL HAVE NO FEAR, INSURANCEMAN 2.0 IS HERE!!!!!!!!!!!!!!!!!!!!!

                The reality of this is you need to look at your policies people!  You need to know what you are covered for, and what you are not.  Furthermore, you need to know what to expect in the case of a loss in the way of valuation.  That is, unless you are working with InsuranceMan 2.0.  If you are, then I explain everything to you upfront and in detail. 

                Let us start with Actual Cash Value (a.k.a ACV).  ACV actually appears on more policies then I care to talk about.  For starters, it is a cheaper type of coverage (so this is a bit of wicked trickery some agents may use in order to get you a lower premium if they are trying to woo you away from another agent!  Watch out for these Evil-doers!!!!!!)  So, what is it exactly?!?!?!  That is a tough one to define, my friends.  In some instances, when adjudicated in the court system, it has been defined as a “fair Market Valuation” which means, what would someone reasonably pay for the same used, depreciated item.  This is a slippery slope indeed, because who is to say what someone is willing to pay.  Beauty is in the eye of the beholder and all.  In most instances (like almost all of them, and the way the insurance companies define it is) it means the cost to replace the damaged item with like kind and quality MINUS depreciation.  Did you get that?!?!?!?!  MINUS DEPRECIATION!!!!!!  So that still you purchased back 5 years ago for $80,000 that you have run countless batches through, and now it has that cool patina and so much sentimental value (after all, it has been with you like an old friend.  You know its nuances, what makes it run well, what it does not like, etc.), could be depreciated by … pick a number.  I say, “pick a number” because you just do not know.  Insurance companies have depreciation schedules for all types of items, but it varies depending on what it is, size, condition, etc.  So, it could be maybe 6% a year, or as high as 20%.  You won’t necessarily know until the unforeseeable strikes.

                Given the example outlined above, for ease of math sake, let’s say that same still in today's market still costs $80,000 (the replacement cost of the item).  If you have an ACV clause on your policy and the depreciation is on the low end of 6%, then it would equate to the cost of the replacement item, minus depreciation, multiplied by the number of years.  So, in this example it would be 6% multiplied by $80,000 replacement value, multiplied by the 5 years you have owned/operated the still.  Given this example it would look something like this, .06 *$80,000 * 5 years = $24,000 in depreciation.  So, $80,000 - $24,000 = $56,000 in value after depreciation.  Well dear reader, that leaves you in a jackpot of having to come up with $24,000 to replace your $80,000 still.  If you are facing a depreciation that is much higher, like the 20% example given, then you would be looking at complete and total loss and you would have no coverage for your damaged still!!!!!!!!!!!  As I have said so many times before, NO BUENO!!!!  Also, keep in mind that this does not even take into account your deductible.  If you have a higher deductible, like a $2,500 or $5,000 deductible amount, then it would reduce your coverage even more, leaving you with more out of pocket expense.  Again, the use of higher deductibles are definitely something in the bag-o-tricks of the Evil-doers that they may use to trick you into thinking they can offer you a lower premium.  Be ever vigilant and watch for these injustices!

                Now, if you have a Replacement Cost Valuation (RCV) clause on your policy, ah ……. This is as close to Nirvana as you can get.  Not the Kurt Cobain band mind you, rather the Buddhist belief of a transcendent state in which there is neither suffering, desire, nor sense of self, and the subject is released from the effects of karma and the cycle of death and rebirth. It represents the final goal of Buddhism, in case you were wondering. 

                So, what is this magical RCV of which I speak?  Well, let me tell you …  RCV, simply stated is the cost to replace the damaged item with like kind and quality, period.  With RCV, the insurer does not care if your still is 5 years old or that you have run countless batches through it.  They will replace it with like kind and quality, and in our example above, that was the full $80,000.  Wait, what?!?!?!?  “Are you telling me that the insurance company will give me $80,000 to replace my $80,000 still if I have RCV on my policy?!??!?!”  Yes, yes I am … however, keep in mind there is a deductible.  So, if you have a $1,000 deductible, you will actually get $79,000.  Still (pun intended), that is a whole heckuva lot better than anything in the ACV example given!

                “What if the example given above is wrong and the still is now only $60,000 to replace, do I get to keep the extra $20,000 in value?!?!?!”  Um …. N O !!!!!  With RCV, it is paying to replace it with like kind and quality, so if the insurer can find the same still in today's marketplace and replace it for $60,000 then that is what you will get, a new still of like kind and quality.  The idea of insurance is to make you whole again after a loss, not benefit you and give you additional money.  Don’t be greedy fine citizens, you recieved your same still back after all!

                 Well, with that I hope I have assisted in tearing away the scary mask of ACV vs. RCV so that you can sleep easier at night knowing the difference.  Or at least knowing I am ever-watching and here to protect you.  Now I am off to continue my daily fight against insurance injustice, and the pursuit of insurance education of the fine citizens of this land!  As always, if you have questions about your insurance coverage’s that you already have in place, or if you are looking to start a new facility, I am only one call away.  Just flick on the InsuranceMan 2.0 beacon and I will come to your rescue.  PM me, shoot me a text, or give me a call @ 307-752-5961.  Or send me an ultra-super-secretive-coded-encrypted-message via the magical super-web at InsuranceMan2.0@yahoo.com .

 

Until Next Time My Friends, Stay Vigilant!!!!!!!

Aaron Linden

a.k.a InsuranceMan 2.0