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