02/12/2023
Homeowners Insurance - Actual Cash Value VS Replacement Cost, what is the difference, and why does it matter?
Replacement Cost Coverage typically costs more than Actual Cash Value coverage but will pay out more since depreciation is not a factor in settling a claim; instead, it reimburses you based on how much it would cost to replace, repair, or rebuild your property at today’s prices.
Actual Cash Value, also known as ACV coverage, is less expensive than Replacement Cost coverage, but when a claim occurs, there may not be enough money to cover the loss. With Actual Cash Value coverage, depreciation is a factor in determining the amount the insurance company will pay.
If you have Replacement Cost coverage when a claim is filed, most insurance companies will first pay you the Actual Cash Value for the covered loss. Once the item is repaired or replaced and the receipts are submitted, the insurance company will make additional payments to reimburse the extra money you paid to replace or repair the item.
Knowing how your policy will pay before a loss occurs is important. In almost every case, Replacement Cost Coverage is the best choice. Read your policy carefully.
