The cash-out option

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A Cash Out Option in an insurance claim refers to when the policy holder keeps an amount of money to spend as they wish, instead of paying for or arranging for the physical repair, replacement, or service that the policy normally covers.

This option is invoked for many reasons, maybe you own the property outright and want to sell the property "as-is", possibly you have a construction-capable person who needs to pay back a debt, maybe you just want to pay yourself for the work and use any the sweat-equity to go on vacation or pay down the credit card bill. Policy and 3rd party conditions and options vary, and of course this is not advice in any way, but simply a common option to be aware of.

Pro Tip: there are pro's and con's to every decision, and in this case if you have a mortgage company, or lien holder, or any other entity with rights to the property, you may be obligated to ensure their demands and conditions are met first, so it's always best to consult with an attorney, any lien holders, and your insurance company before making a final decision.

• After you file a claim (e.g., for damage to your home/business), the insurer assesses the loss.
   
• The insurer provides their assessed value to repair, also known as the Recoverable Cash Value, or RCV value (the full amount needed to put you back to a pre-loss position).

• The insurer then applies an amount for wear, tear, and aging, also known as Depreciation.

• The insurer then provides you a up Up-Front Payment, also known as the Actual Cash Value, or ACV payment (the estimated repair cost, minus an amount for depreciation, and also your deductible)

• Example of an ACV payment:

                                      RCV $ 10,000.00

     minus deductible of $ 1,000.00

minus Depreciation of $ 1,000.00

                                     ACV $ 8,000.00

• If you have an ACV policy, there are no more payments and the file is closed.

• If you have an RCV policy, when the repairs are complete the insurer sends out the amount held back in the name of depreciation (so in theory your only out-of-pocket expense is your Deductible amount).

• Also if you have an RCV policy, you normally have the option to keep the ACV payment to spend as you wish, and the policy is also closed (the down-side is that you will not be supplied the depreciation amount)

Obviously and if choosing this option, it will be extremely important to be confident that the full amount of damage is accounted for, and that is where AICS can be of invaluable assistance.

Contact AICS today for your free consultation:

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