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Replacement Cost vs. Actual Cash Value

By October 29, 2019Personal Insurance

You’ve probably heard these terms before but do you know the difference?

Replacement cost is the price of replacing property or a belonging, which could be more or less than what you originally paid.

Actual cash value is the current value of your property or a belonging with depreciation.

Let’s look at some examples. Keep in mind all covered claims would be subject to your policy’s deductible.

Example A: You bought a couch 5 years ago for $3,000 and now it’s worth $1,000. If it’s damaged in by a covered cause of loss you would receive $1,000 with actual cash value OR, with replacement cost, you would receive the value of a brand new couch (similar model), which could be more or less than you originally paid.

Example B: Your home is insured up to $300,000 and is damaged by a covered cause of loss. You may get up to that amount to rebuild your home with the same like, kind and quality if you have replacement cost coverage. Most policies cover your home at replacement cost. Be sure to speak with your agent to make sure you have proper coverage on your dwelling.

And remember, claims are typically paid on an actual cash value basis until you turn in the final receipts.