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What is the difference between actual cash value and replacement cost coverage?

Replacement Cost Coverage versus Actual Cash Value (ACV)

Replacement Cost Coverage and Actual Cash Value refer to the type of replacement that your homeowners insurance policy offers for your dwelling and contents coverage.

Replacement Cost Coverage: Replacement Cost Coverage is the most common type of coverage offered under a standard homeowners insurance policy. Replacement cost coverage simply means that in the event that your home was damaged or lost in a covered peril, your home insurance company would pay to replace your home or repair damages with materials of similar kind and quality without deducting for depreciation.

Replacement Cost coverage may also apply to your home contents. Under a replacement cost coverage policy, your furnishings, clothing and other home contents would be replaced with items of like kind and quality. So, if your 5 year old flat-screen television was ruined in a covered fire, your home insurance company would replace it with a new flat screen television of equal quality.

Actual Cash Value: Actual Cash Value is a type of coverage that some basic home insurance dwelling policies offer where your home and contents are replaced with items of like kind and value minus depreciation. In this situation, if your home was damaged in a covered peril, your home insurance company would pay the actual cash value of your home before the loss.

The same goes for your home's contents. If you had a 10 year old television that was worth $1500 when you bought it, but only worth $200 today- your home insurance company would replace your TV with a $200 television, or the actual cash value of the television today after depreciation.

Last Updated: July 15, 2009

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