Learn About the Difference Between Actual Cash Value and Replacement Cost Value

Learn About the Difference Between Actual Cash Value and Replacement Cost Value

Find out what actual cash value and replacement cost value coverage mean in relation to your homeowners insurance.

When getting homeowners insurance, you will have various coverage options to consider. One of the policy decisions that you will have to make is whether you should invest in actual cash or replacement cost value for your personal belongings. Not sure which option is better for you? Here’s what you need to know about each type of coverage.

Actual Cash Value

Actual cash value refers to the value of covered items minus depreciation. When you have this type of coverage, your insurance provider offers compensation for a covered item based on its current value. As the value of an item declines the longer you own it, actual cash value policies tend to offer less coverage than their replacement value counterparts. While this makes these types of policies more affordable, this also means that you may have trouble replacing a high-value item.

Replacement Cost Value

On the other hand, replacement cost value insurance offers coverage that will reimburse you for the full value of an item based on its value at the time of purchase. This type of policy offers coverage that does not take depreciation into account. Replacement cost amounts are generally set and agreed upon by all parties before a home insurance policy is finalized. These policies tend to be more expensive because they offer you compensation for a brand new item regardless of how much the value of the item has dropped since initial purchase. If you want coverage for high-value items such as jewelry, fine art, antiques, and so on, then getting replacement cost value coverage is advised.


When it comes down to it, it is up to you to decide whether an actual cash or replacement cost value policy is better for you.  If you would like further assistance making these types of serious policy decisions, contact the trusted experts at Steve Wilk Insurance Agency.  Located in Illinois, check out our new office at 310 S Main Street, Suite C, Lombard, IL 60148.