Interpreting a Flood Insurance Policy: Unit 9

November 12, 2012 by

How Flood Damages Are Valued

The value of flood damage in the Dwelling Form is based on either Replacement Cost Value (RCV) or Actual Cash Value (ACV).

Replacement Cost Value (RCV)

Replacement Cost Value (RCV) is the cost to replace that part of a building that is damaged (without depreciation). To be eligible, three conditions must be met:

  1. The building must be a single – family dwelling, and
  2. Be principle residence, meaning client lives there at least 80% of the year, and
  3. Building coverage is at least 80% of the full replacement cost of the building, or is the maximum available for the property under the NFIP.

Actual Cash Value(ACV)

Actual Cash Value (ACV) is Replacement Cost Value at the time of loss, less the value of its physical depreciation.

Some building items such as carpeting are always adjusted on an ACV basis. Example: Wall to wall carpeting could lose between 10% – 14% of its value each year, depending on the quality of the carpeting. The depreciation would be factored in the adjustment.

Note: Personal property is always valued at ACV.

 

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Filed Under: Interpreting a Flood Insurance Policy