Jared Seyl of Farmers Insurance Outlines Difference Between Actual Cash Value vs. Replacement Cost for Homeowners        

With hailstorms posing a threat to Denver residents this spring, homeowners need to understand how roof insurance works—specifically, how actual cash value differs from replacement cost, according to Jared Seyl Farmers Insurance.

According to Seyl, replacement cost refers to the cost of replacing a damaged item with a new version of it. For a home, this cost refers to the labor and material costs required for rebuilding the home. It is not related to the value of the home in the real estate industry, as this value can vary dramatically based on factors such as the housing market and the desirability of the home’s neighborhood.

Actual cash value refers to the true value of a certain item versus the cost of replacing this item. This value takes into consideration that just about everything depreciates in value over time. An insurance adjuster can use various methods to determine how much a home’s roof, for example, is actually worth based on such factors as the roof’s replacement value and age.

Unfortunately, the older a person’s roof is, the less it is worth, which means that he or she will receive less coverage from the insurance company if the roof were to be damaged by hail. Thus, the homeowner may have to pay a large sum of money out of pocket to replace the roof. In light of this, an insurance policy that covers replacement cost is generally a better option than one that covers actual cash value, according to Jared Seyl Farmers Insurance.

Farmers Insurance maintains a strong reputation for putting its customers first. Today, it generates nearly $20 billion worth of premiums every year by effectively serving more than 10 million families. The company continues to take pride in operating with integrity and excellence in leadership throughout the world.