What is the difference between Replacement Cost and Actual Cash Value?

Replacement Cost and Actual Cash Value are both types of replacement coverage that help to determine how much the insurance company pays out to either repair or replace damaged property in the event of a covered claim. The difference between the two essentially comes down to depreciation (the decrease in home or property value since it was purchased due to age or wear and tear). Actual Cash Value is the replacement cost of the property minus its depreciation, meaning the insured is left to pay the remainder of what the property costs to replace. With Replacement Cost, the insurance company does not factor in depreciation, but calculates the amount based on the actual cost to replace the damaged or destroyed item. Of course both types are subject to deductibles depending on your individual policy.

While Replacement Cost can be more expensive than Actual Cash Value, in the event of a covered claim, it is likely to more than pay for itself compared to the amount of depreciated value. It is possible for a policy to have Replacement Cost on one coverage and Actual Cash Value on another so you will want to discuss it with your agent to make sure you have the best possible coverage for your home and property. A home inventory can help you figure out how much property you have in your home and come in handy in the event of a claim.


Disclaimer: Information found on this webpage is intended for general use only and does not in any way guarantee or exclude coverage for a specific policyholder. This information is not intended as a substitute for professional advice. Please refer to your insurance policy for specific coverage and exclusion information.