What is the difference between replacement cost of my home and actual cash value? Ben Childress- Fayetville, N.C.

Filed Under (Home Insurance Q&A) by Home Agent

Ben,

The replacement cost of your home is how much it would cost to replace your home and its contents with new materials at current prices in the event of a loss. Actual cash value (ACV) is the value of your property at the time of a loss. ACV may be determined as the replacement cost minus depreciation.

For example, let’s say your flat screen television was ruined in a covered peril. It cost $2400 when it was purchased new 5 years ago. Under a policy that provided replacement cost coverage, you would be compensated for the cost of a new replacement television of equal, original kind to your previous television when it was new. Under a policy where you have actual cash value (ACV) coverage, you would only be compensated for the depreciated value of your old television set. So, if your television was worth only $300 today (before damages) your homeowners insurance company would compensate you $300 for your TV.

For more home insurance defintions, visit our home insurance glossary to brush up on your home insurance lingo.

Thanks,

Your Agent@ HomeInsurance.com