Understanding Home Insurance Basics

We get asked all the time about Insurance. Which one is the best? Which one is the worst? Is mine good or bad? The answer is almost always the same. IT DEPENDS!

Disclaimer: I am not a public adjuster. I am not acting as a public adjuster. Since the insurance companies have made it an actual law for it to be illegal for a contractor to almost even say the word policy, I want to make the above very clear. I am not representing any particular insurance company or agency, I am just trying to help some people understand some basic principles. All policies are different, so your miles may vary.

Since explaining and discussing many of these things takes a lot of words, and I am with you on not always wanting to read long winded explanations, here are the cliff notes.... 1. Policy of Indemnification means insurance should pay for your damaged stuff. 2. RCV Good, ACV not as Good. 3. Deductible, you owe it, just pay it. 4. O&L is good to have. 5. Insurance Fraud is bad. And jail time with fines? .... Ain't nobody got time for that! Now for the full discussion, read below :)

Most people have no idea what their insurance policy has in it. Sometimes I think this surprises me. But in reality, it doesn't, and it shouldn't. Insurance policies are page after page after page of verbiage that makes very little sense to someone that isn't in that particular industry. Terms like RCV, ACV, O&L, Inclusions, Exclusions, Indemnification.... the list goes on and on. What is really covered? Who knows!! We talk to insurance agents all the time that can't decipher what is in a policy without taking lots of time to review it. As a homeowner, all we really care about is that we are covered in case something happens, and that we aren't going to have to pay a huge sum of money to get our homes put back together. Well the answer to whether that happens lies in all those pages of words, somewhere, if you can find it. Here are some basics that I hope will help.

1. Your home insurance policy is a "policy of indemnification". Merriam-Webster defines "Indemnify" as "to secure against hurt, loss, or damage" or "to make compensation to for incurred hurt, loss, or damage". https://www.merriam-webster.com/dictionary/indemnify. So basically it means if something happens, your policy is there to pay for all the damages, except for your deductible. That is the simplest way of looking at it. Now there are a million different things that can be added or excluded in your policy that can change that. But in its basic form, your policy is there to indemnify you of the loss.

2. RCV... ACV.... You will hear these two terms asked and thrown around a lot. And it can be very difficult to actually tell which one you have. There isn't some clear place to find it in most policies. RCV stands for "Replacement Cost Value". ACV stands for "Actual Cash Value". Now what does that mean? RCV is the cost it takes to replace the damaged property with the same quality materials. So if your roof is damaged and needs to be replaced, and your contractor says it should cost $10,000.00, then the RCV is $10,000.00. ACV is the cost it takes to replace the damaged property minus the depreciation. So if your roof costs $10,000.00, and the insurance company depreciates it by 50% due to age or condition, then the ACV is $5,000.00. So in a nutshell, using the amounts above, if you have an RCV policy, then you are only out your deductible. If you have an ACV policy you are out $5,000.00 plus your deductible. RCV is what you want in your policy.

3. Deductible... There are many options in deductibles depending on your insurance carrier. And it is different for different types of peril. The deductible for storm damage, commonly termed "wind and hail", is most commonly 1% or 2% of the value of your home. If you own a $100,000.00 home, then your deductible would be $1,000.00 or $2,000.00. You may also have a fixed deductible set at a certain amount. It all depends on your insurance carrier and what you select. 

4. Ordinance & Law. This is one that catches people off guard all the time. Your homeowners policy coverage has the intent to rebuild or repair the damaged structure and return it to the state in which it existed prior to the loss caused by a covered peril. The problem is that building codes change all the time. Appropriately so! They change to make sure that building practices and materials are improved for a safer and better structure. If you exclude "O&L", then insurance will only pay the amount required to bring your structure back to old building code standards, and you will then have to pay out of pocket for the extra amounts needed to be up to code. Sometimes these additional items are minor, sometimes they are thousands of dollars. Sometimes they may seem silly, and sometimes it could be the difference of your structure, or worse your family, surviving a future peril.

5. Insurance Fraud. Oklahoma has made insurance fraud a felony that is punishable by large fines and even jail time. We live in a storm region. Most homeowners have at one time or another had to make an insurance claim due to high winds or hail. And you have all experienced the flood of contractors and sales guys to the area to capitalize on this work. Many of them are good people that just like to do honest work. Many of them are just trying to capitalize on people that need help. Committing fraud in order to save money or "make a buck" is really a bad idea. Each year, the State of Oklahoma is trying harder and harder to crack down on this. And they should. So be careful with the easy deals or promises to make you money off the insurance company. Not paying your deductible is viewed as profiting off the insurance company. It can really backfire. Hire a reputable, local contractor to take care of things and enjoy the peace of mind.