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Replacement cost vs. actual cash value

How your homeowners policy pays a claim matters as much as how much coverage you have. Replacement cost pays to repair or replace at today's prices, while actual cash value subtracts depreciation. Here is how each works, worked examples for a roof and a TV, and the policy details to check.

3 min read

Key takeaways

  • Replacement cost pays to repair or replace with similar items at today's prices, minus your deductible.
  • Actual cash value pays what the item was worth at the time of the loss, after depreciation.
  • Replacement cost usually costs more but can pay far more on a claim.
  • Roofs, belongings and the home itself may be covered differently, so check your declarations page.

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Replacement cost

Replacement cost coverage pays to repair or replace damaged property with similar items at today's prices, minus your deductible. If a storm damages your siding, it pays for new siding of like kind and quality, not the value of the old siding.

Actual cash value

Actual cash value, or ACV, pays what the item was worth at the time of the loss. That's usually the replacement cost minus depreciation for age and wear. The older the item, the less ACV pays. Premiums for ACV coverage are often lower.

A roof example

Hypothetical example. A 12-year-old roof with an expected life of 20 years is damaged by hail, and replacing it costs $15,000.

Replacement cost would pay about $15,000, minus your deductible. Actual cash value might pay closer to $6,000, minus your deductible, because about 60% of the roof's life had been used up. You'd cover the rest. Actual results depend on your policy and the adjuster's assessment.

A belongings example

Hypothetical example. A five-year-old TV that cost $1,200 is stolen. A similar new TV today costs about $900.

Replacement cost would pay about $900 to buy the new TV, minus your deductible. Actual cash value might pay around $300 after depreciation. Many policies cover the home at replacement cost but belongings at ACV unless you add replacement cost coverage for personal property.

Policy details to check

  • Roof payment schedules: some policies pay for roofs based on age, even when the rest of the home is covered at replacement cost
  • Holdback payments: many carriers pay ACV first, then the rest of replacement cost after repairs are done and receipts are sent
  • Extended replacement cost: some policies pay a set percentage, often 25% to 50%, above your dwelling limit if rebuilding costs spike after a disaster
  • Full rebuild coverage: a few policies promise the full cost to rebuild regardless of your limit, but it's rarely offered
  • Personal property: check whether belongings are at replacement cost or ACV

Which to choose

For most homeowners, replacement cost coverage on both the home and belongings is worth considering, because it can pay far more after a loss. ACV may make sense for low-value items or when you need to lower your premium.

CapCenter's insurance agency can help you compare. Our licensed agents compare quotes from multiple carriers, and we review your policy each renewal to make sure you are not paying too much for your insurance.

Frequently asked questions

Which should I choose, replacement cost or ACV?

Replacement cost, if it fits your budget. It usually pays more after a loss. Your agent can show you the price difference.

Can my roof be covered differently from the rest of my home?

Yes. Some policies pay roof claims on an age-based schedule or at ACV. Check your declarations page or ask your agent.

Where do I find out how my policy pays?

Look at your declarations page and the loss settlement section of your policy, or ask your agent to walk you through it.

Does replacement cost pay the full amount right away?

Often not. Many carriers pay ACV first, then the remaining amount once repairs are complete and you send receipts.

Is ACV cheaper?

Usually, yes. ACV premiums are often lower because the policy pays less on claims.

Does replacement cost apply to my car?

Auto policies usually pay ACV for a covered total loss. Some offer new-car replacement as an add-on, so review your policy or talk with your agent.

For general information only. Coverage depends on your policy, carrier and state. Insurance offered through CapCenter’s insurance agency.

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