ACV vs. Functional Replacement Cost

Posted: Wed Feb 08, 2012 02:23 pm Post Subject:

I think you should go for the ACV policy. Given that your home is 200 years old, there will be parts and structures which won't be replaced under a Functional Replacement Cost policy. For example, if you have a 16th century ornate chandelier in the hall, FRC will pay for a 'functional replacement' of the chandelier in case it is damaged or destroyed. But with ACV, you'll actually be compensated for a 16th century chandelier, the actual value of which might run into a few thousand dollars.

In my opinion, go for the ACV policy.

Posted: Thu Feb 09, 2012 09:30 am Post Subject:

I would NOT go with an ACV policy. Depreciation costs can be substantial if you have a loss.

Talk to another agency specializing in historic homes for a second opinion.

Posted: Thu Feb 09, 2012 01:12 pm Post Subject:

Yes, depreciation costs can be substantial. But look at it this way: If the house has plastered walls, in case of fire damage or any sort of loss, it'd be replaced by a drywall under a FRC policy. With an ACV policy, you can keep you plaster wall and have it repaired at the same time.

Look at this from an insurance company's point of view. Insuring this property with an ACV policy won't be worth the premium they will be getting out of the policy. On the other hand, an FRC policy will let them replace the plaster wall with a drywall thereby saving quiet some money on the 'functional replacement'

Posted: Fri Feb 10, 2012 02:31 am Post Subject:

Heller, you are equating ACV with replacement cost. An ACV settlement will not be enough to replace old plaster walls with new plaster walls.

Why do you think the ACV policy is so much less expensive than the FRC policy?

Posted: Fri Feb 10, 2012 10:35 am Post Subject:

But with an FRC policy you'd never get a settlement substantial enough to cover for 200 year old wood and wall works. It'd reduce a 200 year old historic home to a 2 year old all plastic, drywall, assembly line home.

It just makes the FRC less than half a notch better than the ACV policy. Maybe an HO8 or a specifically designed historic homes policy is more useful in this situation?

Posted: Sat Feb 11, 2012 02:38 am Post Subject:

An FRC policy may make sense for a customer wanting their home repaired after a claim, without having to worry about depreciation, but not needing or desiring like kind & quality. This makes even more sense when replacing with like kind & quality is not possible.

Replacement cost policies are the best option. Insurers like Chubb & Fireman's Fund specialize in unique, high value homes. Of course, you pay more for this coverage.

Posted: Sun Feb 12, 2012 09:53 pm Post Subject:

The OP needs an HO-8 policy in which values are going to be prenegotiated. It is specifically designed to cover the situation described. Property losses to "antique" homes are nearly impossible to cover under ordinary HO-3 policy language, because the cost to repair or replace 200 year old items may be next to impossible.

Obviously, if restoration is a critical factor, we don't want the home to be turned into an "assembly line home". But that does not mean that damaged walls cannot be repaired/replaced with drywall. There are advantages to drywall, such as Georgia Pacific's "DensArmor" fiberglass surfaced wallboard that virtually eliminates the possibility of mold attacking the paper surface of ordinary wallboard. Plus homes that are built with drywall do not retain the dampness of a humid environment that plaster will.

Additionally, in the event of a substantial loss, building code upgrades are almost going to be a certainty, and you would want some of all of that cost to be covered as well.

An agent well-versed in the kind of property to be insured is a critical component of the proper insurance prescription. It could be that neither ACV nor FRC is appropriate for the need. That's why negotiated values are probably best for situations like this.

Posted: Fri Mar 23, 2012 10:10 pm Post Subject:

My opinion, take Maxherr's advice and find an agent that specializes in that type of property. The biggest problem you could have with an ACV policy is that unlike what one of the answers stated this type of policy is going to depreciate anything that is damaged. With that being said, using his example of a 200 year old chandelier they could potentially depreciate it by a very high percentage and they are NOT going to give you any credit for it being an Antique or Collectible. 200 years old is a pretty old chandelier and is in their eyes close to the end of it's estimated useful life expectancy.
Take his advice and find someone that specializes in that type of insurance. It sounds like a nice house and it is very important to make sure you have the proper coverages.

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