You can’t predict what life will throw at you. Perhaps you leave the theater after enjoying a movie with your friend only to find that your car isn’t anywhere to be found. Maybe you come home from a weekend at the cottage and discover that a rotten tree limb has fallen onto the back patio deck. You might even haul your boat out from storage and realize that vandals have destroyed the hull.
These setbacks can be disappointing and disheartening, but when you understand the difference between market value and replacement cost – and how they relate to your insurance policy – you can get back on your feet in short order.
Today, we’ve asked our Barrie insurance brokers for their input on market value, replacement cost, and how they apply to your insurance policy.
Understanding Market Value
A building’s or vehicle’s market value is the price it can be bought or sold for. It depends on many different factors, such as demand for the product or property, the geographic location of the product or property, and any additional features the product or property would come with, such as land with a house.
Let’s say that there are two houses, A and B, that are identical in every way except for one: where they’re located. House A is located only five minutes away from the local school and fire station, whereas House B is located at least a half hour outside the closest town. House A will fetch a much higher market price than House B, just because of where it was built.
Understanding Replacement Cost
Replacement cost is how much it would cost to repair or replace the property or product in question. It doesn’t take into account the value of the amenities or land nearby, but it does factor in:
- Details like light fixtures or carpeting
- The price of materials required to replace the product or property
- The cost of labour required to repair the product or property
Returning to our previous example of House A and House B, the replacement costs for these two properties would be much closer to each other, since the only difference in cost might be in the price of labour or materials, as those would be unique to each location.
What Matters to Your Insurance Agents
Most forms of insurance from business to recreational insurance will include a clear statement of what the particular insurance company or agent is willing to cover in the event of replacement. You’ll usually have the option to choose whether to insure your property for either replacement cost or actual cash value (ACV). The coverage options will all help you financially recover, but each one has different benefits and drawbacks, so you’ll likely want to speak to your insurance broker for advice on which one would be best suited for you and your insurance policy.
What Will Your Insurance Cover?
- Specified Limits – If you select this coverage option, then your insurance provider will help cover the cost of damages up to a predetermined amount.
- Guaranteed Replacement Cost – This option is what it sounds like: you’re guaranteed the full cost of however much it takes to replace your property, even if that goes over what was originally laid out in your home or recreational insurance policy.
- Actual Cash Value (ACV) – To calculate the actual cash value of something, you have to subtract the depreciation value from the replacement cost. So let’s say that a few wheels on your ATV are destroyed, and your insurance will cover new ones. The wheels you need are $1,000, but your old ones were on there for a year. Your ACV would be $666.67, since tires depreciate at around 33% per year.
Still Have Questions for Your Insurance Broker?
The world of insurance is a large one, so if you still have questions after reading through this blog article, we understand. Insurance agents and brokers spend their careers learning about all the in’s and out’s of insurance, so when you’ve got questions about your insurance policy or available coverage options, it’s time to give Will Marshall Insurance Brokers a call.
As a family business for over 35 years, we work diligently to build long-lasting, trustworthy relationships with our clients that reach beyond just professionalism to encompass an understanding of their complete needs. Will Marshall strives to provide outstanding service to every client, making sure all insurance options and concerns are thoroughly explained to each and every client. We’ll work with you to help you find the ideal policy and coverage.