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Do You Have the Right Coverage?

I get it - we all need insurance but do we really understand it? There's health insurance, car insurance, life insurance and of course, home insurance. Usually, insurance is a set it and forget it kind of thing - we get a quote from an agent when we purchase a home, and we just keep paying the premium - set it and forget it. We might occasionally shop around for a better deal, but beware, a better deal might mean coverage that will bite you later. Let's talk about it.

Two Options in Coverage

In the home insurance world, there are two kinds of coverage: Replacement Cost Coverage (RCV) and Actual Cash Value (ACV). You might think that if your home is covered, you're fine - but you need to look at the details.

Replacement Cost Value coverage will pay to repair or replace covered items without being depreciated.

Actual Cash Value coverage will pay to repair or replace the depreciated cost of the covered items.

Depreciation is a calculation made by the insurance company to reduce value of the item over time - similar to how a car will depreciate as it gets older and older.

Here's an example:

The Ulrichs and the Hetfields live next door to each other, they both moved into their new neighborhood in the same month of 2014. The Ulrichs have ACV coverage and the Hetfields have RCV coverage with the same $1000 deductible. One of those Colorado hail storms comes through and damages their roofs. For example's sake, let's say the damage to each roof is $15,000.

For the Hetfields, with their RCV coverage, are easy and straight forward. They pay a $1000 deductible and get a check for $14,000 to replace the roof.

The Ulrichs will be given a depreciation calculation. Since the roof is 10 years old, let's say the insurance company depreciates their roof $10,000. That means after all is said and done, they receive just $4,000 (damage minus depreciation minus deductible). They are left having to cover the remainder out of pocket. While they likely had a smaller premium over time, the bigger out of pocket expense when they had a claim wiped out all those savings and more.

The moral of the story is: take a few minutes to understand your policy - whether it is RCV or ACV coverage. After that, understand what is actually covered so you can set adequate expectations. Beyond that, understand your deductible so that you understand what you'll need to come up with for a claim.

Your insurance agent should educate you on the different options available for you. Start a conversation today. If you need a recommendation for an agent, just drop me a DM or email - I'm happy to refer you to a great agent.

I provide the expert guidance, resources and confidence to easily make a move in Northern Colorado. Every real estate transaction is unique and I work closely with you to develop a plan, strategy and approach to get the most out of your next sale or purchase. If you, a friend or a neighbor have a real estate need, please get in touch with me | Jared@TheCraftBroker.com or 970.222.1049


About the Author: Jared Reimer is a native Coloradoan and an Associate Broker at Elevations Real Estate in Old Town Fort Collins. He’s a community advocate, business champion, blogger, leader, tireless volunteer, innovator, thinker and expert on all things real estate in Fort Collins and surrounding Northern Colorado. You’re likely to find Jared spending quality time outside with his wife, Kacie, and kids, Hudson and Isla, or visiting with friends and clients throughout Fort Collins and Northern Colorado. Call or text Jared at 970.222.1049 or email him at Jared@TheCraftBroker.com