How Much Insurance Do You Need on Your Home: Understanding Actual Cash Value vs. Replacement Cost Value

In response to recent inquiries from residents, the New Hampshire Insurance Department (NHID) is reminding homeowners that evaluating the appropriate level of home insurance coverage is a critical step in protecting one’s home. Many consumers find themselves asking, “how much insurance coverage do I really need for my home?” 

To assist homeowners in making informed decisions, the NHID is offering guidance on two most common types of settlement options—Actual Cash Value (ACV) and Replacement Cost Value (RCV).

ACV Settlements

The ACV settlement calculation is replacement cost value minus depreciation based on the property's age, condition, and obsolescence. While this type of policy may come with a lower premium, it can also result in a significantly lower payout as compared to an RCV policy. Thus, homeowners should also understand how RCV is determined and processed prior to determining what type of policy to purchase. 

RCV Settlements

For RCV, the insurer works with the homeowner at policy inception to determine the home’s RCV. The insurer will pay the full RCV up to the limit of insurance if the home’s value is at 80% or more of the full replacement cost at the time of the loss. If a home falls below 80%, the insurer will pay the greater of the ACV or an amount that is determined in relation to 80% of the replacement cost.

After a covered loss, the insurer will initially pay the claim on an ACV basis. For RCV, the insurer will typically reimburse the necessary amount to actually repair or replace the home up to the limit of liability as detailed in the prior paragraph so long as the homeowner notifies the insurer of intent to repair within 180 days of the loss. 

Stated Value Amount

It is important to remember that New Hampshire is a stated value state.  See RSA 407:22. If the home is a total loss due to fire or lightning, the insurer is then required to settle for the full insured amount regardless of whether the homeowner choses to rebuild the home or not. This statutory standard does not apply to perils beyond fire and lightening. 

Agents

Homeowners are encouraged to consult with their insurance agent or company to determine which coverage best meets their needs. Additionally, the National Association of Insurance Commissioners (NAIC) offers a helpful Homeowners Insurance Shopping Tool, located at (https://content.naic.org/sites/default/files/committees_c_trans_read_wg_related_shopping_tool_singles.pdf) to assist consumers in comparing coverage options.

Department Contact

For more information and resources, visit the New Hampshire Insurance Department’s website at https://insurance.nh.gov or contact the Consumer Services Division at 800-852-3416.