When reviewing an insurance policy, two terms come up often: Replacement Cost and Actual Cash Value. Understanding the difference can make a major impact on how much you receive after a claim. Check out our guide below!
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When reviewing an insurance policy, two terms come up often: Replacement Cost and Actual Cash Value. Understanding the difference can make a major impact on how much you receive after a claim.
Actual Cash Value (ACV)
Actual Cash Value takes depreciation into account.
That means:
- Your payout is based on what the item is worth today
- Age, wear, and condition reduce the claim amount
- Older items receive lower reimbursement
Example:
If your 10-year-old roof is damaged, ACV coverage only pays the current value, not the cost of a brand-new roof as the depreciated value is reduced from the total claim payout.
Replacement Cost (RC)
Replacement Cost coverage pays to replace the item with a new one of similar kind and quality, without subtracting depreciation.
That means:
- Higher payouts after a claim
- Better financial protection
- Less out-of-pocket expense for repairs or replacements
Why this choice matters
Choosing the right coverage can mean the difference between:
- Fully rebuilding after a loss
- Or facing unexpected costs during an already stressful time
While replacement cost coverage may come with a slightly higher premium, many homeowners find the peace of mind well worth it.
Not sure which coverage your policy includes? Our agents can help you review your options and make sure your coverage matches your needs.