Replacement Cost Value

Actual Cost Value vs. Replacement Cost Value

What does Actual Cost Value and Replacement Cost Value mean?

If you’ve filed a claim and received an estimate for repairs from your adjuster or your contractor, chances are the terms Actual Cost Value or Replacement Cost Value or their corresponding acronyms (ACV or RCV), appear somewhere on that estimate. These are terms that may be unfamiliar to someone who is new to the insurance claims process, but it is important to know the difference between them and what they represent as far as what your insurance policy covers.

In many instances homeowners do not have a clear understanding of what their insurance policy covers.  Your policy doesn’t typically make for great summertime reading and can often times be a bit complicated to understand.  One thing all homeowners and policy holders should know is whether your policy offers Actual Cost Value coverage, or Replacement Cost Value coverage.  Every home insurance policy is different, but the majority of homeowner policies in the state of Texas offer Replacement Cost coverage.  So what does this mean for you the homeowner? Let’s start with some definitions.

Replacement Cost Value – Sometimes shortened as RCV, Replacement Cost Value is generally defined as the cost to replace or repair damaged property with new materials of like kind and quality, and no deduction for depreciation (more on depreciation in a bit).

Replacement Cost Value

What is Replacement Cost Value?

For Example: Your home was damaged by flooding due to a broken pipe inside your home.  You filed a claim with your insurance company, have met your deductible, and are looking to replace the furnishings that were damaged as a result of the water.  One of the furnishings that was damaged was a sofa that you had purchased about a year ago for $1500. If you have Replacement Cost coverage as part of your policy, you might be paid $1500 to $1600 for the sofa because that is what it would cost to buy a similar sofa at today’s market prices.

Actual Cost Value - Sometimes seen as ACV, Actual Cost Value is generally defined in home insurance as the cost to repair or replace damaged property minus depreciation. In other words Replacement Cost Value less depreciation.

Actual Cost Value

ACV is the Replacement Cost less depreciation.

For Example: If we were to use the scenario described above with the sofa, and your policy provided Actual Cost Value coverage, you may get paid $1200 for the sofa as opposed to the $1500 that you paid for it when you purchased it.  This is because with Actual Cost Value coverage your carrier is paying for the Actual Cost of that sofa today (think one year old used sofa).

So what is this “Depreciation” that keeps getting mentioned?

Depreciation

Depreciation is the loss of value of property due to age, wear and tear, or obsolescence.

Depreciation can be defined as the decrease in the value of property over time due to wear and tear, age, or in some cases economic obsolescence. A simple way to think about this is how much you would be willing to pay for a new television as opposed to what you would be willing to pay for a used television.  The difference between those amounts can be thought of as a type of “depreciation” you have associated with the used TV.  Insurance companies obviously use more sophisticated methods to determine a depreciation amount.  They attempt to establish the useful lifespan of an item (for example a TV’s useful lifespan may be determined as 10 years) and then determine how much of that lifespan remains as a percentage.  You multiply that percentage by the replacement cost and you get the Actual Cost Value or ACV.

For Example - A TV you bought 5 years ago for $1000 is damaged or destroyed due to a fire.  The useful lifespan of a TV is determined to be 10 years. The cost to replace the TV with a brand new one (Replacement Cost Value) of like kind and quality today is $1300.  But, because the TV that was damaged was already 5 years old, it only had 5 years left of its useful lifespan.  So the current Replacement Cost for the damaged TV is $1300 with 5 years of useful life left (50%), the Actual Cost Value would be calculated as $650 ($1300 (RCV) x 50% (Percent of useful life left) = $650 (ACV)).

While the example of the television can be helpful in conceptualizing depreciation, it is important to keep in mind that depreciation can apply to the building materials inside your home as well.  The difference between dollar amounts covered under Replacement Cost and Actual cost can vary quite significantly, so it is therefore important to know which one your policy includes and make sure that you are comfortable with the amount of coverage you have.  As you might imagine, each type of coverage affects your premiums.  Replacement Cost coverage is more expensive, as you are replacing old with new. You should speak with your adjuster to clarify which coverage is included in your policy before you begin any repair work.

Hopefully this helps you understand some of the terminology that might show up on your policy, or might be thrown around if you have filed a claim.  Feel free to leave any questions in the comments section if you would like clarification.  Understanding your policy and the claims process is a vital step in alleviating stress during the repair process.

Note: All examples mentioned above were created to help explain these concepts and do not represent actual values determined by any other entity.  If you have questions about a claim that you filed, or about the coverage of your insurance policy it is always advisable that you speak with your Agent or Adjuster.

 

How cold is too cold for dogs

Have you ever wondered how cold is too cold?

Cold weather is back here in Austin, and it looks like it’s going to stick around for a few days.  We’re getting a slight reprieve today (High of 58° F) but then the possibility for freezing temperatures return Thursday and Friday morning.

Hopefully you know what you need to do to protect your pipes during freezing weather, but what about the family dog? How cold is too cold for your dog to be outside? The folks over at Pet Plan created a handy infographic to quickly assess the danger cold temperatures can pose for your dog.  Hopefully this will help you decide if your dog can use some indoor time while we wait out this cold spell.  As always, you should error on the side of caution, you know your animal better than the chart.

Pet safety during cold weather

Handy chart from Petplan to determine how “cold is too cold”.

Don’t forget about your plants and pipes either, as freezing temperatures can affect those as well.  Everyone (pets included!) stay warm.

Protect Against Frozen Pipes in Austin

Freezing weather is back! What you need to know to protect your home.

Frozen pipes - Frozen outside water faucet

Frozen water inside pipes can lead to them bursting.

Frozen pipes can lead to burst pipes, which can flood your home with water causing thousands of dollars of damage to your walls, carpets, ceiling and furniture. Burst pipes occur when the water inside of them freezes and expands.  What are the steps you should take here in the Austin area to protect against frozen pipes?  We list off the major preventative measures you should take so you can rest easy.

Avoid frozen pipes in Austin

  1. Wrap outdoor pipes and faucets with rags, towels or plastic foam
  2. Make sure the lid for your outdoor water meter box is on tight.  You may consider insulating with a towel if it is going to be a hard freeze. (The outdoor water meter is generally by the curb with a circular cast iron lid here in Austin).
  3. Cover vents around your home’s foundation (if your home is on pier and beam).
  4. Disconnect water hoses from your faucets, drain and store inside.
  5. If you have a swimming pool, drain the circulation systems (or if it’s a short freeze you can keep the pump motor running, but running the motor for too long may cause damage to it).
  6. Drain any water sprinkler supply lines.
  7. Open the doors of your cabinets under sinks in your kitchen and bathrooms to allow air to circulate through and warm the water pipes underneath.
  8. Keep your home heated to at least 55 degrees (more relevant if you are away from your home for an extended period of time).
  9. Allow your indoor faucets to drip, it doesn’t need to be a steady stream, just a slow drip.
  10. Know where the shutoff valve is for your home and how to turn it on and off.
  11. If you are leaving town and know cold, possibly freezing weather, is in the immediate future consider turning off your water at the shut-off valve and turn on faucets to drain your pipes.  Be sure to turn the faucets back off before turning the shut-off valve on again.
  12. If you do decide to turn your water off at the shut-off valve to drain your pipes, you should contact your gas or electric company to get instructions on how to protect your water heater.

What Should you do if your pipes freeze or burst?

  1. The first thing you need to do is turn the water off at the shut-off valve.  Call a plumber to help locate and repair the broken pipe.  Do not turn the water back on at the shut-off valve until the pipe is repaired.
  2. If a pipe is frozen, but has not burst or cracked, thaw it out slowly with a hair dryer, heating pad or by soaking a towel with warm water. Slowly move the heat source to the coldest area of the pipe as concentrating heat in one spot can cause the ice to crack and shatter the pipe.  Then turn the pipe on and let if run until the pipe is thawed and water pressure is normal again.
  3. Do not use open flame devices such as a blowtorch.  These are fire risks.

Insurance Agent vs. Adjuster – What’s the difference

Terms to know: Insurance agent vs. Insurance Adjuster

For many homeowners filing and dealing with the insurance claim process is a completely new experience for them.  They will be presented with a lot of new information, and wrapping your head around all the different terms can be overwhelming at times.  In this article we hope to explain the difference between the two terms that will undoubtedly arise soon after filing a new insurance claim.  The insurance Agent vs. an insurance adjuster, who are they and what role will they play in your insurance claim?

The Insurance Agent

Your Home Insurance Agent is the individual who sold you your insurance policy.  He or she is basically an insurance salesman who manages your policy with the carrier (the insurance company that your policy is held with) but is typically not involved in the loss settlement.

Home Insurance Agent

The agent is the person who sold you your policy.

Agents who do get involved in the loss settlement usually do so only to assist the insured (you the homeowner or policy holder) if the insured has issues or concerns about the claim process.  They should be viewed as a valuable resource for information if you have questions about how the process works and what to expect going forward, but will most likely not have detailed information about the coverage of your claim, cost of damages, nor scope of loss. For that information you would want to talk to the Insurance Adjuster.

The Insurance Adjuster

The adjuster is the person who is handling your claim.  The adjuster assesses damage, determines coverage (what the scope of loss is), estimates the cost of damages, issues payments, and monitors coverage limits for the insurance company.  It is your adjuster’s job to help you get your life back together after your loss by providing you with the financial resources necessary to do so.

Insurance adjuster or claims adjuster

The adjuster is the person handling your claim.

Your adjuster must also do this within the terms of your insurance policy.  The adjuster has a responsibility to both you and the carrier to pay your claim, IN FULL, within the terms of the contract.  It is a common misconception to view an adjusters job description as being “to hang on to as much of the insurance company’s money as possible.”  If they have that attitude, they don’t last long due to their continual confrontations with insured’s.  The vast majority of adjusters simply want to pay reasonable and customary amounts for what is owed under the terms of the policy.  It is not unusual for there to be differences between the estimated cost for repairs that your adjuster provides and the estimate that your repair contractor creates.  Communication between your repair contractor and adjuster will work out these differences. Settling an insurance claim is really quite simple: if there are damages from a covered loss, payment is owed.  You can find more information about the role of an adjuster here.

Water Damage – Terms to know – Psychrometry

What is psychrometry and what role does it play in a water damage scenario? Webster’s Dictionary defines psychrometry as follows: The art of determining the amount of moisture in the air by the use of the psychrometer (sling hygrometer)

image of a sling hygrometer or psychrometer

Photo of a sling hygrometer or psychrometer

from the Greek “psychro” meaning cold, it refers to the combination wet and dry thermometers in the sling hygrometer that are used to determine relative humidity. As the wet bulb is swung through the air, water evaporates from the wet bulb, and there is a cooling effect from evaporation.  This accelerates the cooling effect, and by plotting the difference in temperature from the wet bulb to the dry bulb on a psychrometric chart, it is possible to determine the relative humidity of the surrounding air.

Psychrometric Chart

Psychrometric Chart

Although the sling hygrometer (psychrometer) is still in use today, many restoration technicians find using a hand held instrument called a hygrometer far easier to use.  This instrument uses an electronic sensor to evaluate the temperature and relative humidity of the air it is sensing.

The ability to measure the relative humidity and temperature of the air will help the restoration technician determine how to set up an adequate drying system.  The technician needs to use the driest air with the largest capacity to carry moisture, to allow the fastest rate of evaporation from wet materials and prevent further water damage. This translates into the hottest, driest air available.  This may be outside air, and if so, that is known as an open drying system.  If the outside air is too cool or humid, then it may be necessary to set up a closed drying system.

The setting up of a closed drying system is going to require the technician to have the appropriate equipment. An understanding of psychrometrics, balancing temperature, humidity, and air flow of both open and closed drying systems is a must.  It will be necessary to measure the relative humidity and temperature and have the right types and capacity of dehumidifiers to handle the water load in the structure.

Moisture is first removed from materials (like carpet) by physical action. Then the remaining water is allowed to evaporate into the air.  Air movers help push away moisture laden air that is adjacent to the wet carpet. This allows drier air to come in contact with the wet carpet so that evaporation can continue. The act of evaporation, which is the change from a liquid state to a vapor state, requires energy and that use of energy will lower the air temperature as more and more of the air in a structure approaches the saturation point (the point where it will not hold any more moisture). Obviously if the air has a high relative humidity to start with, this will slow the rate of evaporation.

The water in the air tries to reach an equilibrium point: dry air and moist air mix, and dry components in a structure start to absorb moisture out of the air.  These components are called Hygroscopic, or having the property of absorbing or being affected by the moisture in the air.  These materials normally have a moisture content of about 10%, however when the relative humidity of the air exceeds 60% the rate of absorption by the hygroscopic material is greatly accelerated. These items swell as they absorb water, any damage that occurs from water that is introduced in this fashion is referred to as secondary damage. If we allow the humidity of the air to stay high for too long a period than these hygroscopic items may become damaged. Items like drywall become very weak when wet.

The normal range of humidity found in a home is in the 30-50% relative humidity range. When the relative humidity of the indoor environment exceeds 60% it becomes unhealthy to inhabit and the hygroscopic materials in the structure will start absorbing moisture. This is because the moisture tries to reach an equilibrium in the home. Moisture travels from areas of high humidity to areas of low humidity. This occurs because the extra weight of the water in the air increases the pressure exerted on the surrounding environment. This is called vapor pressure.

Image of fire damage to house

Before and After Fire Damage repairs pictures

This was a home that had pretty extensive fire damage to both the interior and exterior of the house.  We originally went out to secure the home after the fire and then proceeded to demo and haul off debris.

Fire damage to outside of home

Fire Damage to exterior of home

Another angle showing the extent of the damage.  Quite a lot of demo was required.

Image of fire damage to house

Fire Damage to exterior of home alternate view

We had to take a large portion of the interior down to the studs to begin the repair process.

Fire Damage Restoration

Fire Damage view from interior after demo work

It can be very difficult for a homeowner to see their house in this state, it becomes unrecognizable, but it is a necessary step in the process.

Framing of home after fire damage

Another view of the framing of home after fire damage

After lots of hard work we completed the repairs, and got the homeowners back into their home.

Dining room after repairs

The dining room after repairs had been completed

They were very happy to be back into their house, and thrilled with the results.

Kitchen Fire Damage restoration

View of the kitchen after Fire Repairs were completed

Kitchen Cabinets completed

Kitchen cabinets and counter tops in home after fire damage repairs.

We understand how difficult and disruptive dealing with large losses like this are for homeowners.  Ultimately what we want is to restore your home, and, as much as we are able to your life, to the way it was before the loss happened.  We want to be a resource available to you to answer any questions you may have about the process. We want to do whatever it is we can do to make this difficult and stressful time easier for you.

Water Damage Restoration

Water damage claims, both large and small, require rapid response

The moment you discover water damage to your home it is important that you act quickly to prevent further damage.  If you have never had a home insurance claim, you may not know what steps you should take.  We hope to offer you some helpful advice on how to approach a water damage restoration claim.  Now every claim will be slightly different, and will be handled slightly differently, but in general the order of steps are as follows:

  1. Find the cause of the water damage and stop or fix it.
  2. Contact a water damage restoration company or emergency water mitigation company to extract, clean, and dryout your home.
  3. Have a water damage restoration company repair the damage caused by the water to your home.

Each of these steps will need to be addressed, and the quicker the first two steps are taken care of, the better.  This is because unusually high moisture levels in your home can quickly increase the amount of damage to the building materials of your house like flooring, drywall, insulation, cabinets, etc. To stop the damage, the home needs to be completely dried out (this is not quite factually correct, you really are wanting to get the moisture level of your home back to its regular levels before the water damage occurred).  It is highly recommended that you have a professional water damage restoration company or emergency water removal company handle this step as they have will have all the appropriate equipment to extract water, detect hidden moisture, monitor the drying process, and prepare the home for the repair process.

How to find a water damage restoration company

Having water damage or flood damage to your home is a stressful, overwhelming, and disruptive experience.  Sometimes you need a more experienced voice to guide you through the process.  For that reason you shouldn’t hesitate or be afraid to contact your insurance agent.  They will have experience with water damage claims and can help guide you to reputable companies and contractors, as well as answer any questions you may have.

You may also call an expert directly.  Most water damage restoration companies will be happy to answer your questions and offer advice on how to proceed. If this is your first claim, you may not know of a water damage restoration company.  In general your agent can refer you to one, or a quick look on the internet for water damage restoration companies or browsing some companies on Yelp! can give you a couple of options to choose from.  Make sure the company seems willing to answer your questions, and if you find that they are pushing too hard for a sale or you find them unhelpful, don’t hesitate to move on to the next one.  You want someone that is going to help you through this process, not create more stress for you.

What does a water damage restoration company do?

Upon arrival at the residence, the emergency water restoration crew will briefly explain the standard procedures in a situation of this type.  The water damage restoration company works for you, not the insurance company, and their top priority is your health and safety, and the preservation of your homes value.  If there are certain materials of your home that have to be removed, it is because they are damaged beyond repair or pose a risk to your health.

The water damage restoration company should check the home for wet overhead building materials, slipping and tripping hazards, and electrical shock hazards.

They should protect carpet from furniture stains by moving furniture to dry areas of the house or by placing protective tabs or blocks under legs or bases.  This will also protect the furniture from moisture absorption. Carpet exposed to moisture for even just a few hours can begin to delaminate, which is where the adhesive holding the primary and secondary backing of the carpet has weakened due to exposure to water and releases.  If this occurs it may be necessary to remove the carpet, however, the adhesive regains it’s strength if dried and handled properly.

Any excess water should be extracted to prevent it spreading to other areas of the home.  This also keeps the water from buckling wood floors and migrating up baseboards and sheetrock walls. Any delay in the removal of water from these areas can result in the need to have the materials themselves removed.

Water damage restoration

The flooring here had to be removed as the water had sat to long and the flooring was unrepairable

The water damage restoration company should examine the carpet, pad, and subfloor to determine the best way to salvage these items if possible.  If handled quickly, most carpet and padding is salvageable.

Drying equipment should be installed to dry the structure and contents as quickly as possible. The quicker the structure is dried, the less chance for permanent damage, excessive odor, and prolonged inconvenience to the insured.  The equipment is carefully monitored each day until the moisture readings show that moisture levels have returned to a normal state in the home.

In certain cases, it may be advisable to apply an antimicrobial to help prevent microbial growth.  This will be dependent on the amount of time that has passed before the water and excess moisture has been removed and dried, as well as the type and source of the water damage (i.e. clean, gray, or black water).

The emergency water mitigation company is only there to perform the absolutely necessary emergency services on the initial call.  These services are meant to preserve, protect and secure the property from further damage, as well as protect your health.  Once the drying out process is completed, the repair process can begin.  In some instances this process can be done by the company that completed the drying or mitigation. In other cases you will need to find a company that specializes in water damage restoration repairs.  Again, your agent can help you find a company for this process as well.

For many home water damage scenarios, the damage is covered by your insurance, however every policy is different, so it is always a good idea to discuss with your agent your policy and what is covered.  Remember, your agent is there to help you and can make the claims process easier if it is determined that the water damage is covered.

This article is meant to be informative.  Every instance of water damage to a home is different, and will therefore be addressed differently.  It is strongly advised that you seek expert advice before making any decisions regarding your home and your policy.

 

 

 

Flood damage and the reason for water extraction

What you might not know about flood damage

Flood damage to your home can be caused by all three of waters different phases (solid, liquid, or gas) and the longer any of these three phases of water remain unmitigated, the likelihood for more damage is increased.  That is why it is important to remove all water, not just the visible water, as quickly as possible.  In this article we hope to explain some of the ways that flood damage will affect your home if it has not been completely removed, and explain how quickly the water can enable microbial growth.

Whether it is from flood waters, bathtub or toilet overflows, water heaters, faulty pipes, or anything else, water spreading through your home poses a substantial risk to your property and your health. If you have ever experienced a water loss, big or small, you may have been told by your insurance company that you need to have “water mitigation” performed as quickly as possible. This immediate action recommended by your insurance company may seem hasty, but it is not recommended without good reason. Leaving any excess moisture anywhere in your home for any prolonged period of time increases the chance of structural damage, and greatly encourages microbial growth.

Flood damage and water damage

Water damage due to water not being removed in a timely manner.

Water damage restoration, water removal and water extraction is more of a science than you may have previously considered. There are standards that all legitimate water mitigation companies follow that are set by “the scientific community, the international, national and regional trade associations serving the professional disaster restoration industry, chemical formulators and equipment manufacturers, cleaning and restoration training schools, restoration service companies, the insurance industry, allied trades persons and others with specialized experience”. The point being that a lot of thought has gone into water damage restoration, and the importance of immediate water removal and water extraction, from a lot of very smart groups and people.

When a home has been flooded and water removal or water extraction is needed, one of the first steps is to identify the source of the water and to have it “fixed” as well as determining the Category of the water that the structure is exposed to. These categories are meant to help identify the range of contamination in the water and determine the extent of flood damage.  We use 3 different categories to identify this:

  1. Category 1: This is water that comes from a sanitary water source and does not pose substantial risk to health.  Examples of this category include broken water supply lines, tub or sink overflows (with no contaminants), appliance malfunctions involving water supply lines, falling rainwater or melting ice and snow, broken toilet tanks or bowls that don’t contain contaminants or additives, and more.  While the water from these sources can originally be considered “clean”, that status is subject to change when the water comes into contact with other surfaces and/or materials.
  2. Category 2: Category 2 water contains contaminants and can potentially cause discomfort and sickness if contacted or consumed by people.  It can contain unsafe levels of microorganisms and other organic or inorganic chemical or biological matter.  Examples of Category 2 water include dishwasher or washing machine discharge and overflows, toilet overflows (without human waste), broken aquariums, and more.
  3. Category 3: This water is considered grossly contaminated. This type would include sewage, toilet overflows (any overflow that originates from beyond the toilet trap will be considered category 3), rising ground water, and others.  This water can contain toxic organic substances, organic matter, pesticides and other harmful materials.

Determining the Category of water that has intruded into the home is one of the first steps in the water removal process.  It will help determine the course of action going forward.  It is also important to know that the initial category determination can deteriorate to another category over time and depending on other factors such as what it has come into contact with.

The amount of water that has affected the home will also be determining factor on what the necessary water removal steps will be. It will provide a reference for the amount, type and size of equipment used on the flood damage restoration process. Certain situations can change the amount and type of equipment used at any time during the water extraction process.

The excess moisture caused by water damage in a home not only increases the danger of microbial growth overtime, but it also has adverse affects on the materials, structural and otherwise, in a house.  Different materials can absorb moisture in different ways, and should be looked at and measured to evaluate the amount of moisture absorbed.  In many cases it removal of certain materials is needed in order to get the moisture levels in the home back to equilibrium.  This can include drywall, insulation, wood flooring, carpet and carpet pad, ceiling drywall, baseboards, sub-floor, and cabinetry.  In each case the return of the moisture level in the home to normal levels, and the category of water the materials were exposed to will be the primary determining factor to whether or not the materials need to be removed.

Flood damage to drywall and insulation

Drywall needed to be removed to access the insulation behind.

There are many factors that determine the processes a company will utilize to address flood damage in a home.  Some of them can be disruptive to your life and home, such as the removal of flooring or drywall.  It is important to understand that the reason these things are done are to protect the value of your home and the health of it’s inhabitants.  Water can hide in it’s various forms, and if left unchecked and not dried can cause damage to your homes structural materials as well as allow microbial growth that can be hazardous to your health.  Proper restoration after any type of flood damage should be a very important consideration.