Actual Cash Value

Last updated: October 7, 2015

Difference Bewteen Actual Cash Value and Replacement Cost

Dwelling: Actual Cash Value

In some cases, especially if you have an older home, insurance companies will only offer actual cash value coverage instead of replacement cost coverage.

  • Actual cash value is the amount it would take to repair or replace damage to your home after depreciation.

    • Depreciation is the decrease in a home or property value because of age and wear and tear.

  • For example: A storm destroys your roof. Your roof has a 25-year useful life and is 10 years old. The company pays based on the remaining 15 years.

  • NOTE: No matter the value, the amount you receive will always be reduced by the amount of your deductible.

Contents: Actual Cash Value vs Replacement Cost

Most insurance companies provide coverage on the contents of your home on an actual cash value basis.

  • You may insure your personal belongings for replacement cost, but you’ll pay a higher premium.

    • For example, in 2007 you purchased a couch for $700. Your couch is destroyed in 2015 and is worth only $300 because of age and wear and tear. A new couch now costs $900.

      • If you have an actual cash value policy, you are entitled to the current value of the couch ($300) minus your deductible.

      • If you have replacement cost coverage, you will be paid $300 for the couch’s current value. When you show proof of purchase of a replacement couch, you will receive the $600 minus your deductible.

Keep your receipts. Proof of purchase is required to get the full replacement cost amount.

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