Skip to main content

Actual Cash Value vs. Replacement Cost – What’s the Difference?

By June 18, 2021Uncategorized

If you’re shopping for homeowner’s insurance, you may find yourself faced with two policy options: actual cash value or replacement cost.

It’s important to understand the difference between the two because your choice could make all the difference when it comes to your home.

Replacement Cost vs. Actual Cash Value

Although actual cash value might sound like it would provide more coverage, it’s actually the other way around.

An actual cash value policy pays to replace your home or possessions minus a deduction for depreciation. Think of it as the amount of money you could receive if you sold your possessions in their current state.

On the other hand, a replacement cost policy will pay to rebuild your home or replace your possessions without accounting for depreciation. It’s the amount of money you would need to buy all-new items or home renovations today.

A home inventory can help you know how much your home and possessions are worth. See how to create one here >>

Which Type of Homeowner’s Policy Should I Get?

Jill Steinke, a customer service agent at Block Insurance, tells people to think of their policy this way: ‘“It’s all based on replacement cost,” she said.

Let’s say you bought your home for $150,000. That doesn’t mean you’d be fully covered with a $150,000 actual cash value policy.

“Try to rebuild your house with everything it has in it for $150,000 – you’re not going to be able to rebuild it for that cash value. You need a replacement cost of $300,000,” said Steinke.

Hear more from Steinke about homeowner’s insurance in this video:

Protect Your Assets With a Replacement Cost Policy

In basic terms, a replacement cost policy can be beneficial because it provides enough protection to rebuild your home today if you had to.

According to Steinke, a replacement cost policy can sometimes be about the same cost to you as an actual cash value policy, so it’s important to weigh your options and go with the one that will provide better coverage.

An insurance professional can help you evaluate your home and budget and choose a policy that’s right for you.

“Here at Block Insurance, we want to make sure that if you would have a total loss of your home, you would have enough coverage to protect your assets,” said Steinke.

Request a Free Homeowner’s Insurance Quote

Need a new homeowner’s policy, or want to update your current one? Block Insurance can help. Request a free quote today to see how we can help you protect what matters most.