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What's the difference between replacement cost and actual cash value in a homeowners policy?
"I’m applying for homeowners insurance and all the different coverage options and terminology are making my head spin. Can you tell me how actual cash value differs from replacement cost?
"
Jackie Whalen · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“Great question! Replacement cost means that items are replaced as if they were brand new. For example, if your Apple computer is stolen from your house, the insurance company will reimburse you enough money so you can buy a new Apple computer, regardless of how long you owned the stolen computer.
Actual cash value means that depreciation is taken into account when deciding the value of an item. So if we stick with our previous example, the insurance company’s valuation would factor in wear and tear and subtract that amount from the value of the computer, so would you end up with less money.
Replacement cost is more expensive, but it is worth it if you own highly valuable items and ever have to file a claim.
“
View full answer
- Gregory R.
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