How Homeowners Insurance Appraisal Works
Natural disasters and home intruders can leave your home, property, and belongings in shambles in a matter of minutes. After experiencing property damage, no matter how severe, it can be challenging to determine just how much it will cost to repair your home or replace your possessions.
If you’ve previously submitted a home inventory to your insurance provider, the claims process is a bit easier. But your insurer may still dispute your projected repair costs, or you may disagree with your insurer ’s proposed reimbursement amount.
When you (or your insurer ) feel like you’re getting the short end of the stick when it comes to your reimbursement, it may feel like legal action is the only way to settle things. But lawsuits can leave both parties paying for expensive legal fees, not to mention the process can take months or even years.
Luckily, you don’t need to involve any law firms in your insurance dispute, because home insurance policies include what is known as an appraisal clause. The appraisal clause essentially allows you and your insurance provider to settle disputes while bypassing the judiciary process.
Most appraisal clauses allow either party (you or your insurance company ) to invoke the clause in writing in case of an insurance claim disagreement. After someone calls for appraisal, you and your insurer each choose an appraiser to calculate the value of the loss. The two chosen appraisers then choose an umpire who acts as a third-party mediator if the appraisers cannot agree on the amount of the loss.
Then, the appraisers do what they do best––appraise. Each party will go through and analyze the damage to your home, determining the actual cash value or replacement cost and the amount of loss for all affected items and property. When the appraisers come to an agreement on the cost of the damages (or after the umpire settles any disagreements between the appraisers ), your insurance provider will reimburse you for the appraisers ’ agreed-upon amount.
Keep in mind that the amount of your reimbursement depends on the type of policy you have.
Actual cash value policies allow policyholders to collect compensation only for the value of their items prior to being damaged. Let’s say you purchased a laptop for $2,000 four years ago, and its expected lifespan was five years. If an intruder breaks into your home and damages your laptop, your insurance company will only reimburse you for $400 since the value of your laptop has depreciated by $1,600 ($400 per year) since you purchased it.
Replacement cost coverage, on the other hand, requires your insurance provider to reimburse you for the recoverable depreciation of your damaged items. This means that if you had a replacement cost policy in the above scenario, your insurer would pay for the actual cash value of the laptop ($400) along with the depreciated value ($1,600). That way, you will have the full $2,000 to replace your broken laptop, hence the term “ replacement cost coverage.”