What's the difference between replacement cost and actual cost value?
Replacement cost and actual cost value refer to the type of replacement that you are eligible for under your home insurance policy. Replacement cost coverage, the most common type of replacement coverage, allows your home to be repaired or reconstructed in the event of a covered claim back to similar quality without depreciation. On the other hand, a policy that provides replacement up to actual cost value would repair damages or replace contents in your home with items of equal value at the time of the loss including depreciation.
Here's an example of how replacement cost and actual cost value would cover a television that was to be replaced by the homeowners insurance company in a covered claim:
Homeowner A has a replacement cost policy while Homeowner B has an actual cost value policy. Both homeowners owned the same exact television that was damaged in a fire and is covered under the contents portion of their standard home insurance policy. The television was 5 years old, however, when it was purchased new it was worth $2300.
Since homeowner A had a replacement cost policy, their insurance company would reimburse them up to the value of the television without counting depreciation, or $2300.
Homeowner B on the other hand would only be eligible for replacement of the actual cost of the television minus depreciation, which may be closer to $300.
Related Home Insurance FAQs:
- Why is the replacement cost so high? I didn't pay that much to buy it.
- What does my policy cover?
- After I renovate my home, do I need additional home insurance coverage?
- If my household appliances cause water damage does my home insurance cover that?
- What is a home warranty and does it cover the same thing as home insurance?