*For informational purposes only

After losing your home to a wildfire, it can be difficult to know what to do first. Once you have found a safe place to stay, your next step should be to review your insurance policy and start a claim. While dealing with a complex insurance claim is probably the last thing you want to do, it is important to file as soon as possible so you can access funds to pay for living expenses. Plus, starting the process early may reduce the time it takes for you to receive a proper settlement, thereby allowing you to get back home faster. Let’s dive into some of the trickier language you may encounter when reviewing your insurance policy:

Replacement Cost Value (RCV)

RCV is the cost of replacing lost value without deducting for depreciation. The purpose of this coverage is to provide replacement value for like, kind, and quality of property lost within a covered event.

Example: You paid $2,000 for your couch five years ago. It was destroyed and you need to replace it. A similar size, style, and quality of couch from the same store still costs $2,000 today. The RCV of the couch is approximately $2,000.

Actual Cash Value (ACV)

ACV is the amount required to pay for damages or lost property, calculated on the basis of replacement value minus depreciation by obsolescence or general wear.

Example: You paid $2,000 for your couch. It was destroyed. At the time it was destroyed it was five years old with a life expectancy of ten years. It had normal wear and tear. Given 10% depreciation each year, the ACV of your couch is approximately $1,000.

Recoverable Depreciation

Recoverable depreciation is the difference between ACV and RCV that you can recover should you replace the damaged item/property.

Example: Your $2,000 couch has an RCV of $2,000 and an ACV of $1,000. The recoverable depreciation is $1,000 if you replace the couch.

Incurred Costs

An incurred cost is pretty literal — it’s a cost you incur. With some insurance policies, you must incur costs (i.e. pay for something) before they will reimburse you.

Example: Under Law & Ordinance Coverage (Code Upgrade Coverage) you have to pay for items necessary to comply with current building codes up front, then get reimbursed afterward.

Declarations (Dec) Page

The declarations page is a section of your policy that includes important information including name, address, descriptions of available coverages to your property, as well as premium costs. However, all coverages afforded to you may not be displayed on the declarations page and may in fact be located within different areas of the policy. So it pays to look through your entire policy to understand your coverage.

Premium

Your premium is the amount you pay for your coverage monthly. This amount is dependent upon a number of factors including age, area of residence, past claims, and type of coverage.

Insurance Agent

Person that is employed to sell insurance policies. Not to be confused with an Insurance Adjuster.

Insurance Adjuster

Person that is employed to evaluate an insurance claim on behalf of the carrier, specifically to assess how the claim relates to coverages available and the values within the policy language.

Insurance Policy

An insurance policy is a contract between the insured and the insurer outlining the terms and conditions for both parties to follow should a claim occur. Both the insured as well as the insurer have duties and responsibilities that must be followed in order for the contract to remain in good standing.

Depreciation

The decrease in the value of property over a period of time, usually as a result of age, wear and tear from use, or economic obsolescence.

Familiarity with these terms can help you figure out how your policy functions so you are informed as you make a claim. If you have more questions about your specific situation, the experienced insurance advisors at Homebound can help. Visit our website today to get connected with an insurance specialist.

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More on insurance:

• Watch our webinar: Should you rebuild after a fire?
• Deep dive: What is commonly covered (and not) in wildfire insurance policies?
• The future of wildfire insurance: New York Times author Christopher Flavell explains climate change and its growing financial impact on insurance coverage.

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