Personal property replacement cost loss settlement endorsement

Choosing a Loss Settlement Method

Many times each week I speak to customers who want to spend their money wisely and protect their investments so they can enjoy their lives without worry. One of the most common questions I hear is, "My home seems to be insured for a lot more than it's worth; I'd never be able to sell it for that amount. Shouldn't I reduce the amount of coverage?"

At Foremost, we want our customers to have the freedom to choose how best to insure their investments. To assist them with this choice, we help them become smarter about insurance. One of the most common misunderstandings in insurance is loss settlement. It might sound complicated, but loss settlement simply refers to how the amount of money you receive after a loss is determined. Loss settlement for homeowners is typically decided in one of two ways: replacement cost or actual cash value.

Replacement Cost

The replacement cost of your home is determined by entering specific details about it into an online program to determine how much it would cost to replace it with a new one. For example, you've worked with an agent and you determine it would cost $85,000 to replace your manufactured home with a brand new one of like kind and quality if it suffered a total loss. But, what if the loss isn't total? In the event of a partial loss, a replacement cost policy would pay the amount to repair or replace the damaged portions of your home, up to the $85,000 amount of insurance on your policy. Replacement Cost coverage on your home is really great coverage to have, and can restore you thoroughly after a loss, but it can cost a bit more in premium.

Actual Cash Value

The actual cash value of your home is determined by what your home is worth at this moment, not how much it would cost to replace it with a brand new one. Actual cash value policies usually have a lower premium than a replacement cost policy, but they normally do not provide enough coverage to buy a brand new manufactured home in the event of a total loss. If the loss is a partial one, a claims adjustor would determine the value of the damage and then subtract an amount for depreciation. Many customers find this a good option when they aren't concerned with having to replace their home if a loss occurred.

Now that you've gotten smarter about insurance, you can make the decision that is right for you. If you have any questions about loss settlement, feel free to contact an agent at Foremost. To see what type of loss settlement you have on your policy, you'll find it listed on your policy Declarations page.

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What is Loss Settlement Amount?

Loss settlement amount is a term used to denote the amount of a property insurance settlement, whether real estate or personal property. The loss settlement amount largely depends on which type of loss cost settlement option a policyholder has agreed to in their homeowner's insurance policy. 

How Loss Settlement Amount Works

The loss settlement amount is the funds that an insurance company pays out to the homeowner in the event of a homeowner's insurance claim. In the case of homeowner's insurance, homeowners are typically required to carry insurance that will cover at least 80 percent of the replacement value of their house.

Key Takeaways

• There are three loss settlement options offered by insurance companies: agreed value, replacement cost value, and actual cost value. 
• The most expensive premiums are usually attached to the replacement cost rather than the actual cash value option. 
• The third option is the agreed value option, which requires an independent appraiser to help the insurer and the insured agree on the value of the object being insured.

However, the loss settlement amount may be less than the amount of full coverage if the 80 percent coinsurance requirement is not met. 

Every homeowner's insurance policy contains a loss-settlement provision that details how a claim will be paid. This provision applies to the replacement cost payment for both the dwelling and the personal property.

Unfortunately, the provision may allow the insurance company to delay full payment of the claim by paying only the actual cash value of the loss, and in some instances, forego full payment altogether because the insured does not have sufficient funds to repair or replace. 

A loss-settlement provision is a part of every homeowner's insurance policy, and it outlines how a claim will be paid out to the insured.

Examples of Loss Settlement Amount Options

The three loss settlement options are actual cash value, replacement cost, and agreed value. Actual cash value (ACV) usually carries cheaper premiums than replacement cost, which is why many people end up with his type of loss cost settlement option. For a car, ACV would be defined as "fair market value" or the cost for a new car minus depreciation.

For example, if a car was $20,000 brand new, and a policyholder totaled it after owning it for a few years, they would not get the full $20,000, but rather a lower amount, perhaps only $10,000 or even less depending on how old it is.

Replacement cost coverage, on the other hand, is a superior loss cost settlement option for homeowners. Although more expensive, it will pay whatever is necessary to replace your damaged property with property of a like kind and condition, up to the policy limits. 

The agreed value loss cost settlement option is typically reserved for unique items, or items of high worth where the value cannot be easily assessed. For example, if you are insuring a rare coin or an expensive painting, you and the insurance company will have to agree on what the item is worth at the time the policy is written, which is what you will be paid if it is destroyed. Often an independent appraisal will satisfy this requirement.

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