If you feel overwhelmed about making a fire insurance claim, you’re not alone. Insurance policies can be complicated, and when you actually have to make a claim, they can suddenly seem even more difficult to understand. Once you’re in that position, you’ve already got enough on your mind.
Once the insurance company knows about the loss, your next move should be learning everything you can about your insurance policy. You can request your long form policy from the loss adjuster at any time. You don’t need to wait to file a claim, in fact, now might be the best time to start learning everything you can about your policy.
Below you will find some of the most important terms for understanding your home insurance policy and what they mean.
Actual Cash Value and Replacement Costs
When you are replacing personal belongings lost in a fire such as furniture, electronics, jewelry, art, etc., you need to know whether you were insured for Actual Cash Value (ACV) or Replacement Cost.
Actual Cash Value refers to what you would earn if you sold the asset today. It’s not based on what you paid to acquire the asset, but what it’s worth today, factoring in depreciation.
Not many homeowners step back and calculate the depreciation of their sofa or desktop, but furniture and electronics do lose value over time. Most personal belongings like furniture, electronics, and clothes have a useful life. Depreciation is the loss of value over the useful life of an asset.
Homeowners often choose ACV because it means a lower deductible, but it probably would not provide enough to replace the asset.
Replacement Cost refers to how much it would cost you to buy a replacement for that asset today. For example, the cost to buy the same or a similar sofa from the same store. In some cases, replacement cost may be similar or identical to what you recall paying when you first bought the item. In others, such as with electronics, it may be lower han what you initially paid, because that model is now a few years old and the price has gone down.
Deductible
Your deductible is the amount of money you have to pay or cover upfront before the insurer begins to cover the remaining costs of the loss. If you’ve gone to the dentist with dental insurance before, you’re likely familiar with a deductible. It’s the minimum amount you pay out of pocket and it is calculated before your insurance coverage kicks in.
If you’re underinsured, your out-of-pocket expenses may still end up being higher than just the initial payment of the deductible, but the deductible is the smallest amount that you know you will have to pay.
Insurance Adjuster
The insurance adjuster may be an employee of the insurance company, or they may be an independent professional who works for the insurer. They determine how much of an insurance loss the company is responsible for covering. They may work with a contractor to evaluate structural repair costs and collect evidence of the value of certain losses or costs (such as receipts or documentation for damaged belongings).
Significant fire damage claims often involve the policyholder bringing in a public adjuster or insurance lawyer to represent their own interests.
Insured Perils
There are many reasons you might need to make a house insurance claim. Though reasons such as fire, theft, and lightning are regularly included in common policies, your policy will explicitly name the types of loss, or “insured perils” that it covers.
Request your long form policy as soon as you have to make a claim. Read through it and, if needed, get help understanding what it means.
