Which settlement basis is on my homeowners policy?

Your homeowners policy states its settlement basis in the loss-settlement provision, usually referenced on the declarations page or spelled out in a policy endorsement - and many homeowners have never checked which one applies to them. Replacement cost pays what it costs to repair or replace damaged property with new materials of like kind and quality, with no deduction for age or wear. Actual cash value, often shortened to ACV, pays that same figure minus depreciation. The gap between the two only matters once you know which one your policy actually uses.

Where do I find my settlement basis?

Check the loss-settlement or valuation provision inside your policy documents, or the summary on your declarations page. Many homeowners assume they carry replacement cost on everything when in fact only the dwelling is covered that way, with personal belongings defaulting to actual cash value unless the policy is endorsed otherwise. Some carriers also apply actual cash value automatically to an older roof even when the rest of the dwelling stays on replacement cost - a distinction that is easy to miss until a claim is filed.

What does replacement cost coverage actually pay?

If a 12-year-old roof is destroyed by a storm, replacement cost coverage pays to replace it with a brand-new roof at today's price, minus your deductible. If a water loss ruins flooring and drywall, the claim pays for new materials, even though the old ones were decades old. This distinction matters most on two parts of a homeowners policy: the dwelling itself and your personal belongings.

How much does actual cash value typically pay by comparison?

With actual cash value, the insurer first subtracts years of wear from the replacement cost, so you receive only the depreciated value and pay the rest out of pocket. For example, suppose a kitchen fire destroys appliances and cabinets that would cost $20,000 to replace new. Under replacement cost, you collect close to $20,000, minus your deductible. Under actual cash value, the insurer might depreciate those items by 40 percent and pay roughly $12,000, leaving you $8,000 short on the same loss.

What should I do if I can't find my settlement basis?

Understanding your settlement basis is one of the most important parts of homeowners insurance, and discovering you have ACV coverage only after a major loss can mean tens of thousands of dollars out of pocket. If you cannot locate it in your policy documents, request a free coverage review and we will check your settlement basis line by line, including the roof provision specifically.