Actual cash value and replacement cost

Your policy says how losses are paid. Two terms matter most.

• Replacement cost is what it costs today to repair or replace the item with one of like kind and quality.
• Actual cash value, or ACV, is usually replacement cost minus depreciation. Depreciation is a cut for age and wear.

Many homeowner policies pay replacement cost in two steps. First, the insurer pays ACV. Then, after you repair or replace, it pays the depreciation it held back. That second payment often has a time limit and paperwork rules. Read your policy for both.

Your declarations page and the “loss settlement” section of the policy tell you which method applies to your home, other buildings and belongings. They can be different.

Depreciation: check how it was figured

Depreciation is not a single number. It is taken item by item. A ten-year-old roof may be cut more than a two-year-old one. Look for these problems:

• An age for the item that is wrong. Old receipts and permits can prove the right age.
• Depreciation taken on labor as well as materials. Ask how labor was treated under your policy.
• A cut with no list of what was cut or why.

For car claims, a Missouri rule says any cut for betterment or depreciation must be itemized and appropriate in amount (20 CSR 100-1.050). See total loss vehicle valuation for how that applies to a totaled car.

Scope disputes: what the estimate leaves out

The “scope” is the list of work the estimate pays for. Many underpaid claims are really scope fights. The price per item may be fine. The list is too short.

• Rooms or sides of the house that were not inspected.
• Patching one section when the whole surface must be replaced to match. See storm and hail damage claims on matching.
• Tear-out, hauling, permits or cleanup left off.
• Upgrades that building codes now require. Some policies cover these through “ordinance or law” coverage.
• Hidden damage found once walls or floors are opened.

Put your contractor’s estimate next to the insurer’s, line by line. Mark every item that is missing or priced differently. Send that list to the adjuster in writing.

The check marked “final”

Sometimes the insurer sends a check before you agree on the amount. The check or a letter may say “final” or “full and final settlement.” Whether cashing it ends your claim can depend on the wording and the facts.

Do not cash it until you understand it. Ask the insurer in writing whether the payment is partial or final. Keep a copy of the check front and back. If your mortgage company is named on the check, it must sign too. That is normal.

What to do when your claim is underpaid

1. Ask the insurer for its full estimate, including the depreciation list.
2. Get at least one written estimate from a licensed contractor you choose.
3. Compare the two, line by line, and list each gap.
4. Send the list, with photos, to the adjuster. Ask for a written reply.
5. Write down every call. Keep every letter.
6. Check whether your policy has an appraisal clause for disputes over the amount.

If the insurer will not pay a sum clearly owed, Missouri’s penalty law may apply after a written demand and 30 days (RSMo 375.296). Harjot Singh Padda, JD can review the numbers and explain the options.

Common questions

Related reading

• Property insurance claims overview
• Insurance appraisal clause
• Fire and smoke damage claims
• Breach of contract claims