Home insurance based on replacement cost or actual cash value, officials say

Delaware Department of Insurance officials say Delaware homeowners concerned over rising insurance premiums can insure their home and belongings for either replacement cost value or actual cash value.

In a release issued March 10 in response to concerns that statewide property reassessment will cause homeowner insurance premiums to rise, officials said the department and its consumer services team surveyed insurance carriers and found no carrier is increasing or adjusting rates due solely to the recent property assessments. “The property assessment has updated the value of your home from a tax perspective, but your insurer has long valued your property accurately based on your insurance needs,” the release reads.

Officials said property assessments affect property taxes, not insurance rates, and insurance companies do not use county tax assessments to set premiums. “Premiums are calculated based on the replacement cost of your home, not its market value. Even if your property value has increased based on the property assessment, the change alone does not raise your insurance cost,” the release states.

Each home has its own risk profile, and insurers price policies accordingly, officials said. “Because your home insurance policy should cover the replacement cost value or the actual cash value, when the cost to replace the home goes up, the amount of coverage will as well. This means that if your home gets damaged in a fire or natural disaster, you should be fully covered for the new amount of the home, helping you to get repairs or a new house,” the release states.

Replacement cost value is the amount it would take to replace or rebuild the home or repair damages with materials of a similar kind and quality, officials said, and actual cash value is a form of insurance that pays damages equal to the replacement value of damaged property minus depreciation. 

Insurance Commissioner Trinidad Navarro said he encourages consumers to review their homeowner’s policy annually to ensure their coverage matches their needs.

“There are several actions Delawareans can take to potentially help lower premiums. First, ask your insurer how your replacement cost value is calculated; this determines how much it would cost to rebuild your home. Make sure to update safety features regularly such as roofing, wiring, and smoke detectors to reduce risk and potentially lower premiums. Lastly, shop around if your premium changes for reasons unrelated to the reassessment. The Instant Insurance Guide: Home, found on the DOI site, covers basics on property insurance and is free to download,” he said.

Other tips offered to save on insurance costs are:

• Shop around
• Bundle multiple insurance policies
• Increase your insurance deductible
• Improve your home security
• Make home improvements
• Review coverage annually
• Ask about savings
• Take advantage of group insurance (such as AAA or AARP membership).