Two Fire Insurance Types: The Ultimate Protection Guide
What are the two fire-insurance policy types? Replacement cost and actual cash value, explains Pierce County, Washington fire-loss attorney Spencer Freeman. Replacement-cost coverage pays to rebuild—first the depreciated value, then the balance once you've rebuilt. Actual cash value is that rebuild cost minus depreciation for age and wear. Crucially, it reflects construction cost, not the home's market value.
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Answered by Spencer Freeman · Pierce County, WA
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Frequently Asked Questions
What are the two fire-insurance policy types?
Replacement cost and actual cash value—replacement-cost coverage pays to rebuild, first the depreciated value, then the balance once you've rebuilt, while actual cash value is that rebuild cost minus depreciation.
What's the depreciation catch?
Actual cash value reflects construction cost minus depreciation for age and wear, not the home's market value, which becomes a problem when a home's value has risen.
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