Replacement Cost or Actual Cash Value, Which One Should I Choose?

So you hear the terms replacement cost and actual cash value when talking about home or renters insurance, which should you choose?

Well, let’s define the terms. Also understand your agent is there to help if you need clarification.

Actual Cash Value: It is based on the market value of your home or property and considers depreciation. This is generally the less expensive policy as it considers depreciation and the claim payouts are lower. Depreciation can be calculated different ways, it is the market value of the item less depreciation and the number of years of said item.The most common way is to use expected lifetime of and subtracts the percentage of year year since it was new.


Replacement Cost: For homeowner’s insurance this means the amount of money it would take to replace damage or destroyed property to return you to state prior to the peril regardless of depreciation. Remember in terms of home owners insurance, this does not include the land itself. It is the value of home and items.(structure, granite, doors windows, upgrades…) So if your property is appraised and your home is worth $250,000 and the land is $50,000 of that number. You would only need to insure the home at replacement cost for $200,000.

When speaking insurance in terms of homeowners and renters policies. It is normally suggested to get replacement cost on the home and actual cash value on personal property. If you run across any questions while in the process, please contact you agent for further advise regarding. We will be happy to help anytime.

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