Loss SettlementOne of the most important insurance issues you must understand is how you will get paid if you have a claim. Its called the “loss settlement.”

Loss Settlement

I once heard someone say, that “insurance is a complicated business.” Well, at Gila Insurance  we try to keep things simple. But, there are a couple of points that frustrate many consumers when it comes to claims. The first is whether or not something is covered, which we address on numerous places on this site, the second is loss settlement, and the third is valuation. Loss settlement is how the company determines what they will pay you in the event of a loss. The HOW, not the HOW MUCH. How much is important, but the how is the best place to start when determining the how much. There are several different ways a company can determine how they will pay you. The good news is that they tell you how their loss settlement options will work, before you have a claim, and you get to choose how.

  1. The Better Option – Replacement cost – This is the option that you’ll want, and the one that most people buy. Replacement Cost pays the full amount that is required to rebuild the rental property, or damaged portion of the structure, with material that is of like kind or quality. In other words, they rebuild it the way it was.
  2. The Cheaper (or worse) Option – Actual Cash value (ACV)- Yes, Actual Cash Value or ACV is a cheaper option, but the problem is that it’s cheaper for a reason. To calculate the ACV of the home, you start with the Replacement Cost; what it would cost to replace the rental property, THEN you deduct for the depreciation of the asset. While depreciation on taxes is one thing… a great thing, depreciation on an insurance settlement calculation is another, and it’s not good. Before we get to a couple of examples; in summary, Actual Cash Value is the replacement cost minus the depreciation.


Some may try to do the math to see if the discount provided for the ACV option makes sense, and for some it may, but on a larger loss the calculation of depreciation will be damaging to small investors. For larger investors with a diversified portfolio, they may be able and willing to absorb the cash hit. However, even larger investors can get hit hard by Actual Cash Value settlement options on larger losses, especially when roofs, walls, flooring etc., etc. are damaged, all at the same time.

Bottom-line, most investors will be better off with the replacement cost option, which also helps to eliminate confusion and complications when there is a claim.

To get an incredible quote these coverage sections start our online quote form. To Talk to a licensed agent about this coverage call us at 1-877-784-6787.


This coverage explanation is for illustration purposes only and is general in nature. Coverage explained here may not apply to your policy, State, company, or situation. For more information about how your policy would respond in the event of a loss, please refer to the terms and conditions and declarations page of your policy.