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Replacement Cost vs. Actual Cash Value | Tower Hill庐 Insurance - YouTube
Channel: Tower Hill Insurance
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Hi.
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I am Joel Curran coming to you from the Gainesville,
Florida offices at the Tower Hill Insurance
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Group.
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With me today are Susan Smith, Assistant Vice
President of Underwriting, and Brian Banks,
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Customer Service Representative.
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Susan has been with us 16 years and Brian
with us for 2.
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Customers ask us how much to insure their
homes for and today we'll answer that question.
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So what is the value of your home?
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Well no one wants to have to think about losing
their home to a disaster like a fire or a
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hurricane.
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Your home is not only the biggest investment
you may ever make, it also contains memories
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and memorabilia, a safe haven, and a family
retreat that you can never put a price on.
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Brian is with our customer service department.
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This department is staffed with 25 trained
reps and is opened Monday through Friday 8
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to 6.
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Brian, what's the most common question you
get regarding this issue?
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The most common question we get as of recently
from our customers is that the market value
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of my home has dropped considerably and I
am still insuring my home for the same amount.
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Should I reduce my coverage A?
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Can you explain what coverage A is?
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Yeah.
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Coverage A is the actual amount of insurance
that is applied to the principal residence.
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That's not including unattached buildings,
fences or your personal property at all.
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There are a lot of ways to value your house.
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Most people first think of market value and
some people think of this as the price you
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would list your home for.
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But a very successful realtor once told me
that the value of a home is what an actual
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buyer would pay for it today no more no less.
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Your home also has an appraisal value, which
is usually an estimate used to support a certain
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mortgage amount or a tax amount.
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As we are all painfully aware, too many of
us today have mortgage balances higher than
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our market value.
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If you owe more than someone would be willing
to pay for your home, then it's understandable
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that you would be very sensitive to the value
we place on your home for insurance purposes.
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Insurance companies talk about replacement
cost.
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Brian, can you tell us what goes into that
calculation?
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Yes.
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Replacement cost is the amount to replace
the home itself.
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That's not including the land value; neither
is it including the foundation of the home.
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It's just the home itself.
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Are there other things that are included in
the calculation?
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Yes.
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It includes structures not separated by clear
space, such as attached garage, enclosed screens,
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a pool deck with a pool, etcetera.
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In today's construction market, the cost of
replacing your home with comparable materials
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and fixtures may be more than the market value,
so the amount for which you insure your home
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should be based on replacement not potential
sales price.
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It may even cause more to replace your home
than it would to build a new one.
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Since builders of new homes are often building
multiple homes at a time, they can take advantage
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of volume discounting, efficiencies.
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In addition to rebuilding, your insurance
will cover things like debris removal and
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building to updated building codes that require
new or more expensive features.
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Another value we use is actual cash value
or ACV.
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Susan, can you tell us what ACV is?
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Yes.
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Actual Cash Value is simply replacement cost
less depreciation.
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Say you have a standard shingle roof and the
expected life of that roof is 20 years, then
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once its 10 years old, the actual cash value
of the roof is 50% of its replacement cost.
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If you apply that same depreciation to your
home and it's destroyed by a covered peril,
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you don't have enough to rebuild.
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Therefore you should make sure your policy
includes replacement cost versus actual cash
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value.
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Tower Hill is here to assist you rebuild your
home if it's destroyed by a covered peril.
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Our policy is designed to replace your home
without depreciation.
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Therefore, we do require our policies insured
to proper replacement cost.
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Brian, is there other common question you
receive?
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Yes, there is.
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A common question that we do also get from
our customers is whether they should increase
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their coverage A when they are remodeling
their home, adding a new room to their home,
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or a pool.
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And the common answer is yes, but we do recommend
that they contact their agent for a new evaluation.
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Yes, we provide our agents with the 360 value
tool from ISO.
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It's a component based tool that's easy to
use.
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It can produce of evaluation for a standard
home to a custom home.
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It takes into consideration square footage,
wall construction, custom kitchens and baths,
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upgrade, attached pools and screen enclosures,
custom features, like columns, open stairways,
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entertainment rooms.
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And it is localized down to the zip code level.
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Thank you.
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Of course the most important thing is to make
sure you can rebuild your home in the event
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of a severe loss.
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While the loss of a home is devastating you
certainly would not want to add on the burden
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of not being able to rebuild it the way you
would like.
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The silver lining is that when you insure
to the full replacement cost, the rebuild
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home is new.
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A new roof, new appliances, new utilities,
and the home will have updated building code
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features that may even help your future in
premiums go down.
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One thing to remember is that over the years
replacement cost of homes have remained the
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same during this tough economic time in spite
of the ups and downs of the real estate market
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values and your mortgagee will require you
to carry proper coverage on your home.
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At Tower Hill, we are here to help in times
of need.
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And some times that need is at one of the
most difficult times in a person's life.
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When you insure with Tower Hill, we promise
to protect you in the event of a covered peril
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and it gives us a lot of satisfaction being
able to keep that promise.
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After all, we have been doing it for 40 years.
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