Aloha - Insurance and Zone 2

[ric]

The problem with replacement value is that it does not account for depreciation. Often "replacement value" is much higher than market value of a property. The reason for this is in the case of partial damage. For example, the structure could be only 30% damaged and the cost to repair could already exceed the market value of the property. So the premiums on "replacement value" would be higher and account for full repair of a partial loss, even if it approaches or exceeds market value. Insurance companies on the mainland also offer ACV (Actual Cash Value) policies, where you can declare the value. The downside of this is if the property is 50% damaged, you would only get 50% of the stated ACV, even if it cost 2 or 3 times that to repair. . . (i.e. everything, the structure, improvements etc. is depreciated). The ACV coverage is cheaper but you can be in trouble on a partial loss. I don't know if this is even available on Hawaii, but hope that explanation helps in understanding why they seemingly overinsure with Replacement Value policies.